How much student loan debt is too much?

Before you go, we thought you'd like these...
Before you go close icon
The New York Times reported on the double whammy many recent college graduates are facing: Difficulty in finding a job and tens of thousands of dollars in student loan obligations just waiting -- or demanding -- to be paid back. Here's a quick clip from it:

Mark Kantrowitz, publisher of FastWeb.com and FinAid.org, recommends that students follow a simple rule of thumb. "Do not borrow more than your expected starting salary for your entire undergraduate education," he said. "If your starting salary is going to be $40,000, then you should borrow no more than $10,000 a year for a four-year degree."


What exactly is the significance of that 1:1 ratio?
Has Mr. Kantrowtiz analyzed student loan default rates and studies/surveys on how students cope with student debt loads of various levels? I don't know. But there is no particular wisdom behind that $1 in debt for every $1 in earnings, and parents and students would do well to discard it.

In my opinion, $40,000 in debt is way, way too much for students to leave college with. Then there's another problem: "If your starting salary is going be $40,000. . ." How could you possibly know what your starting salary is going to be? Many students enrolled in college planning on careers as high-powered bankers but many of those jobs have evaporated -- and so have their hopes of high starting salaries.

When looking at college financing options, do yourself a favor: Reject cute-sounding formulas for how much student loan debt is too much, and do some actual research: Look at student loan default rates (Sallie Mae makes that information available on its website: It'll take some digging but it's good practice for your college-bound student), economic data, and surveys on the quality of life of students who leave school with large debt loads.

Another tip: Don't take advice on student loan debt from the publisher of a website that funds its operations through ads from financial services institutions offering student loans. Also: Never ask a barber if you need a haircut.
Read Full Story
Credit Card Compare

Credit Card Compare

Whether you're looking for great travel rewards or low annual fees, find the card that's right for you.

Compare Now

From Our Partners