College Debt: How Much is Too Much?

Knowledge is power.

Learning is something that starts at the cradle and ends only at the grave.

These are just two of the greatest world maxims that preach and demonstrate the importance of education.

The industrial and technological revolution is another reason we need to go to school. We need to accumulate knowledge and skills which are the bases for the compensation we receive – which can vary depending on a person’s job. People with higher levels of education get better jobs and better pay.


The Lowdown

Are you a few steps away from completing your high school education? Surely, going to college is the next big step you’re planning on. Earning a college degree opens doors of opportunities for a better life. Your journey may not be that simple, but it all begins with a college education.

But what if you and your family are not quite ready with the finances to support your studies all the way through college? The easy answer would be to take advantage of student loans, financial aid, or federal student aid available thru the Department of Education.

When you have finally determined that applying for a federal student loan is the best way for you to pursue a college education, you should also be aware of its ramifications. Federal Student loan debt can be a problem if you can’t create a balance between your monthly loan payments and your monthly entry-level salary.


The College Student Loan Debt Situation

According to Nerdwallet, in its 2022 student loan statistics, about 45 million student loan borrowers in the US, and 62% of these graduated with an average student loan debt of $28,950.

Sadly, about 4 in10 of these graduates are unable to pay their student loans. It is a big setback to the $1.6 trillion student loan fund the government has released so far.

The total student loan debt (Federal student loans + private student loans) as of July 2022 is 1.75 trillion. The amount is greater than the total US auto loan debt by $412 billion. 

We’re emphasizing these to forewarn you that while federal student loans can greatly help to change lives, you should take them with utmost caution to avoid a major financial dilemma once you graduate from college and find a job.

College Debt How Much Is Too Much - fact

Student Loan Debt Relief from The White House

To address this issue, the White House, on August 24, 2022, through its Briefing Room and the Department of Education, discloses that the Biden administration is fulfilling its campaign promise of providing student loan debt forgiveness or relief to eligible borrowers who are unable to make monthly payments on account of the crisis during the pandemic.

The same loan forgiveness announcement also stated that the Department of Education is offering a debt relief of $20,000 to help borrowers meet their economic needs. About 27 million borrowers will benefit from this student debt relief program.

Furthermore, the Department of Education announces the following:

  • Reduce by 50% the amount that borrowers of undergraduate loans need to pay each month. Instead of paying the usual 10% of discretionary income, they will be asked to pay only 5% of the same. Discretionary income refers to the part of an individual income after taxes, and personal necessities have been paid. Income used to pay for basic necessities such as food and clothing is considered non-discretionary income.
  • Borrowers earning below the federal poverty level are exempted from making monthly payments.
  • Forgive loan balances that have been paid for at least 10 years, provided that the original remaining balance does not exceed $12,000.
  • Cancel up to $20,000 of the student debt of Pell Grant recipients and up to $10,000 of the student debt of non-Pell Grant recipients.
  • Cover borrower’s unpaid monthly interest to prevent outstanding debt from growing.
  • The student loan pause or repayment of federal student loans is extended until December 31, 2022. Borrowers covered by loan relief and repayment programs are expected to resume their payment beginning January 2023.

This debt relief covers all student loan borrowers who are currently enrolled and dependent students whose parents are also borrowers. But their eligibility will be based on their parent’s income.

Student Debt Money - College Loan Concept

College Debt: The Money Matter

There is no definite yardstick as to how much a student loan amount is ideal for your studies. But according to some higher education student debt experts, you should base your undergraduate borrowing on your expected earnings in the first year after graduation.

A nonprofit organization called Mapping Your Future asserts that your monthly student loan payments should not be more than 8% of your monthly gross income. For example, if your monthly payment is $287.70 for a $25,000 loan payable in 10 years, you should have an annual gross pay of $4,3152, or $3,596 per month or $138.40 per day.

You can use their website’s loan repayment calculator to determine how much you need to earn to comfortably pay the student loan amount you have in your mind right now.

Remember, your gross pay is still subject to taxes, social security, and possible company deductions, and you need funds to pay your monthly bills, food, etc. It would be reasonable to allocate not less than 8% of your gross pay to defray your student loan. 

In short, if you apply for a higher student loan amount, you should aim for higher compensation to raise enough funds to repay it. Therefore, when you apply for a loan, you should base it on the entry-level salary of the job you intend to land on. You can make it a bit easier with the help of the Bureau of Labor Statistics occupational outlook program.

When applying for a student loan, you should set an amount that can’t cause you to get stressed at any point in time while you’re studying and repaying your student debt. Any amount that gives you stress signifies too much student debt.

While the decision as to how much loan to apply for rests totally on your shoulder, you should determine it based on research.

Factors that You Need to Consider before Taking out a Student Loan Debt

  • The amount you need for your school fees and expenses – includes tuition, board & lodging, transportation, and school supplies. Vacations, outings, and other non-academic activities are not included.
  • Availability of financial aid – including grants, scholarships, school-funded aid, a work-study program, federal loans, private student loans, and other privileges from the Department of Education
  • The loan default rate – refers to the percentage of an outstanding loan that has not been paid after a certain period. It is also called the penalty rate.
  • The school’s graduation rate – to help you gauge your potential to graduate
  • The potential ROI based on the major you choose  

If you are currently working or raising a family and cannot attend classes on-campus, you can enroll in an accredited online school, enroll in an online degree program, and apply for a student loan to raise funds for your studies.

Before submitting your student loan application, be sure to talk to a financial adviser. It is an important step that you need to do to be sure that you know your privileges, responsibilities, and limitations as student loan borrowers.

You also need to understand that failure to repay the loan will have consequences, particularly on your credit score. So be sure to determine an amount that you can afford to pay.

Common Reasons for Taking Out a Student Loan

For many students, taking a college education is not a walk in the park, especially its financial aspect. The absence of student loans will compel many young people to give up their dreams for a better life.

The real essence of student loans is to help families lighten the financial burden they carry for sending a member to college and allow the student to pay the loan once they obtain employment after graduation. This is especially true with loans that are offered by the government,

But despite the noble goals of the Department of Education in promoting student loans, many students are unable to make monthly qualifying payments and leave their borrower’s loan balance unfulfilled for various reasons. One in three federal student loan borrowers is not even able to finish a degree!

It must be a result of poor planning and research. Take it as a precaution against poor planning. You must plan this stage of your life carefully. It can be your turning point to a brighter future. 

Student loans were conceived with good intentions. Use it wisely, and borrow only the amount you need. If you are working, use it to supplement what you already have. This way, you will not be stressed or pressured, or forced to find funds beyond your means to repay your student debt.

Determining the Return on Investment 

As we all know, student loans are investments students and their families make for a better and easier life, especially for future generations. Ironically, we cannot make a forecast or projection of how much return that investment is going to give us when we finish our schooling. 

But you need to have an idea of the ROI of your loan. If you are borrowing $30,000 to finance a degree that promises a starting annual salary of $25,000, your ROI does not justify your investment because you are supposed to earn $43.155 per year to get a considerable ROI based on MYF’s formula. 

As we have said earlier, make things a bit simpler. Apply for a loan amount that is less than your first-year after-graduation salary. Use the occupational outlook handbook of bls.gov to know the entry-level salary of the possible job you can take with the degree you aspire to pursue.

You may solicit a second opinion by asking newly employed bachelor’s degree graduates how much salary they make in their first year of employment.

Federal Student Loans Borrowing Tips 

At this point, you may already have a good understanding of the importance of student loans and how they can help to change your life if you do it with a careful plan.

As a final reminder, here are some simple tips you may consider when you apply for a student loan concerning your intent to complete a college degree program:

  • Research on salaries, possibilities for career growth, loan repayment terms such as income-driven repayment plans,
  • Look for cheaper alternatives – community college, State and public universities, work and study
  • Stick to the principle of borrowing an amount that is less than your possible first-year salary after graduation
  • Borrow only the amount you need to pay for your education. This can help you avoid and prevent unnecessary defaults.
College Student Exhausted of Student Debt

Loan Amounts – How Much Student Debt Can Students Borrow from Federal Student Lenders?

The federal student loan program is most preferred by students because it is offered and administered by the US Department of Education, and its interest is lower than other lenders. The loan amount you can avail of from a federal student loan depends on your status as an applicant.

  • For undergraduate students, the maximum loan amount you can borrow in Direct Subsidized and Direct Unsubsidized Loans amounting from $5,500 to $12,500 each year. 
  • Professional or graduate students are allowed to borrow up to $20,000 per year in Direct Unsubsidized Loans. You may also avail of Direct Plus Loans to defray the remainder of your graduate degree costs.
  • Parents of a dependent son or daughter enrolled in an undergraduate degree program are eligible for a Direct PLUS LOAN for the remaining amount of your child’s college costs. 

Estimated Total Student Loan Amounts by Debt Type

These are the estimated average debt of students from different college education programs can borrow:

  • Bachelor’s degree: $28,950
  • Graduate school loan: $71,000
  • Parent PLUS loan: $28,778
  • Law school: $145,500
  • MBA student: $66,300
  • Medical school: $201,490
  • Dental school: $292,169
  • Pharmacy school: $179,514
  • Associate Degree Nursing: $19,928
  • Bachelor of Science in Nursing: $23,711
  • Master of Science in Nursing: $47,321
  • Veterinary school: $183,302

Summary Points

A college education is a vital aspect of thriving in this modern world. Unfortunately, not everyone is endowed with the means and resources to acquire it.

For this reason, the federal government, which is directly affected and concerned about the education of its people, is offering student loans to help people overcome poverty and find professional and financial success. 

But a student loan debt can be a future burden if it is not done with careful planning and thorough research. The student debt cancellation or relief offer of President Joe Biden is a breath of fresh air for millions of people, especially low and middle-income families. Middle-class borrowers will be relieved of one economic burden that could have lasted for 10 more years.

The borrowers of student loans forgiven can now stretch their budget to a few dollars more. Nearly 8 million of them can receive relief automatically because their pertinent income data is already on file at the Department of Education.

As a student aspiring for a better life, you must take advantage of student loans. They are a great privilege that’s hard to ignore. But you should take it only after doing careful research and evaluation of its possible outcomes. Just be reminded that your active participation in this endeavor is a big part of your success or failure as a borrower and student.

Some of the biggest things you can do to succeed include choosing an affordable but quality college or university, making above-average academic performance, and finding a good employer who can pay you commensurate to your qualifications. It entails hard work and lots of sacrifices, but they are all part of a journey that you’ll be proud to tell to future generations.


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