How much student loan debt is too much?
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.