How much Student Debt is too much?

Michael Lux Blog, Student Loans 0 Comments

The price of college has never been higher and the total amount of student debt in the United States has never been higher.  As these numbers continue to grow far in excess of the rate of inflation, more and more college students ask the same question: How much student debt is too much?

Unfortunately, there is no simple answer.  In fact, there are a ton a variables to consider…

Risk Aversion

What constitutes too much debt is a psychological question as much as it is a purely financial one.  Some people are more willing to accept risk than others.  If you are the type of person who looks to avoid any sort of financial risk, your maximum amount of college debt should be lower than others.

On the other side of the coin, if you thrive on a high risk/high reward situation, you might better be able to stomach a higher level of debt.  College was once a great investment no matter where you went.  Today, it has become a riskier investment, but not necessarily a bad one.

Earning Potential

If you are attending Harvard Medical School your earning prospects are probably pretty good.  If you are doing a mail order basket weaving degree, it might be wise to spend a little less.

One important aspect of earning potential that should be considered is your specific program of study.  Looking at average salaries of graduates from your school is a dangerous game.  Some programs will earn far more than others just by the nature of the work.  The more specific you can get, the more accurate your numbers will be.

Earning Floor

Just because you are in a program where people have very high potential salaries doesn’t mean you will be making the big bucks.  What happens if you can’t find a job in your field?  What happens if you don’t end up with an average salary?  Colleges, especially certain for-profit schools, are masters of inflating employment statistics and making it seem like finding work is easy.

Most importantly, take a look at the lives being lead by recent grads.  If you cannot afford your student loans on an entry-level salary, you are probably borrowing too much.

What do your other expenses look like?

Do you have kids?  Will you be living in New York or San Fransisco?  Is your lifestyle on the expensive side?

These are factors that only you will know.  Make no mistake, paying off student debt involves some sacrifice.  Huge student loan bills may make some of the “necessities” in your life unaffordable.

Bottom Line

There is no magic number to how much debt is too much.  It varies far too much from person to person.  The best thing to do is to make an honest assessment of your future prospects as well as your future expenses.  Each new loan brings new obligations and new hardships.  If you haven’t planned carefully, things could get ugly.  If you don’t think you will be able to afford your future bills, it probably means that you are on your way towards too much student loan debt.