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How Much Do I Need to Earn to Pay Off My Student Loans?

The minimum salary to afford student loan payments will depend upon many factors including: loan balance, interest rates & loan type.

Written By: Michael P. Lux, Esq.

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When discussing student loan borrowing and affordability, the question that students should ask is, how much can I afford to borrow?

Unfortunately, many students find themselves in a position where they have to ask a more difficult question: how much do I need to make to afford my student loan payments?

Student loan borrowers should carefully consider their student debt as they enter the workforce. Those who have the luxury of multiple opportunities may decide that they should take a less appealing but higher-paying position to live comfortably with their student debt. Others may decide that they can keep up with their student loans and take a more satisfying but lower-paying job.

When evaluating what makes a salary livable based upon student debt levels, several factors need to be considered.

The Type of Student Debt

There is a vast difference between federal and private student loans.

Federal student loans have income-driven repayment plans and options for student loan forgiveness. The income-driven repayment plans allow borrowers to make payments based upon their income rather than how much they owe. This means a borrower with $120,000 in federal student debt should be able to keep up with monthly payments on a $30,000 salary. Similarly, someone in a position eligible for Public Service Loan Forgiveness may find a lower-paying public sector salary to be a financially viable option.

Private loans are far less flexible. While some lenders may make temporary accommodations for a brief hardship, borrowers will soon need to find a salary sufficient to keep up with their student loan balance. Living on a $30,000 salary while trying to repay $120,000 in private student loans would be extremely difficult.

Don’t Ignore Interest Rates and Repayment Terms

Interest rates are a huge factor when planning the repayment of student debt.

Suppose a borrower has $50,000 in private student loans. If the loans have an 11% interest rate and a 10-year repayment length, the borrower will need to come up with $689 per month to make student loan payments.

That same $50,000 of debt at a 3% interest rate requires $483 per month. If the borrower has a 20-year repayment plan, the monthly payment would be only $277.

In short, $50,000 of student debt could mean a $689 monthly obligation, or it could mean a $277 monthly bill.

Important Note on Getting a Lower Interest Rate: Even though most private lenders are not willing to change loan terms or lower interest rates, there are several strategies that borrowers can use to get a lower interest rate. Those with a solid credit score and income are often able to secure lower rates via student loan refinancing.

A Good Rule of Thumb

Interest rates, loan terms, and loan types are all huge variables that can dramatically shift what is “affordable” for borrowers.

As a starting point for analysis, borrowers may want to target finding a starting salary equal to their total student debt.

In most cases, someone with $60,000 in student loans will find a $60,000 per year salary to be sufficient to keep up with their debt.

That being said, this simple rule of thumb should only serve as a starting point. Outside of the student loan terms, there are a ton of other variables that will influence what income is necessary to be considered a livable wage.

Other Important Variables to Think About

The details of a student loan contract are not the only factors to think about when evaluating whether or not a salary is livable.

Cost of Living – A $50,000 salary won’t go far in New York or San Francisco, but in many other areas of the country, it could be quite comfortable. Those that want to live where food and housing are more expensive will need to earn more.

Financial Discipline – Sticking to a tight budget is not for everyone. Some people struggle to keep their spending in check. If financial discipline isn’t a strength, it may be an even bigger challenge to live on a budget tightened by student debt and a lower starting salary.

Other Financial Goals – Those who wish to save for retirement in their 20’s or buy a house right after school will need to earn more money. While it is possible to save for retirement and pay down student debt, a bigger salary makes a huge difference. Similarly, those with student debt can qualify for a mortgage, but a larger income will make things much easier.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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