How Much Student Loan Debt Is Too High?

[ad_1]

“So my student loan payments are more than my monthly rent?” exclaimed my sister-in-law, Kari. “More than a mortgage payment, to be honest,” I replied.

Kari is finishing her first year of college in May and was curious about what life after college would like. She brought her student loan balances and I brought my financial calculator. Within minutes, I had drawn up a mock-up budget, the results of which were sobering. Student loan payments were her biggest monthly expense and would certainly put a strain on her finances if she moved alone.

The good news is that my sister-in-law is ahead of the curve. She still has time to make plans to deal with her loans before they start to give in on her. Many college graduates wait for their first loan bill before realizing their student loan repayment amount.

According to a recent study by NERA Economic Consulting, 40% of college graduates with federal loans do not recall receiving counseling regarding their student loan debt. One of the most startling findings is that respondents thought they understood their finances while in college, but their understanding deteriorated after graduation.

Too many students walk into the financial aid office, receive a promissory note, and assume that a future starting salary will be more than enough to cover the repayment. However, loans are given in the hope that the borrower will know how much debt is too high. Before you start taking out loans to pay for your degree, you need to know how much student debt you can afford.

Your budget with $ 25,000 in student loans (72% of student borrowers). While no one wants to pay off student loans, $ 25,000 in student debt is manageable for the average professional. earn $ 30,000 to $ 40,000.

Depending on a student’s eligibility, most (if not all) of this debt would be in government loans. Based on a 20-year term, the payments would be around $ 150 per month. Looking at consumer data from the Bureau of Labor Statistics, that’s roughly the same amount the average household pays in a year for a used car. That’s a little over a tenth of the average spending on housing.

Your budget with $ 50,000 in student loans (16.5% of borrowers). This is where the graduates really start to feel the burden of student loans. Monthly payments are around $ 450, largely because private loans are required above $ 31,000 in tuition.

It would be a tight budget for someone making between $ 40,000 and $ 50,000. Student loans would represent a large part of the budget. You would pay about as much for loans as you would for food. Food is generally the third largest category in a household budget. Your monthly loan repayment would be about a third of what you pay in housing costs.

Find the Best Student Loan Refinance Lenders

Your budget with $ 75,000 in student loans (6% of borrowers). The average graduate would likely need to return to live with mom and dad at this point. It’s either that or finding plenty of roommates.

You would probably pay around $ 750 per month in student loans. The average graduate with a four-year degree earns around $ 43,000. At this income level, your loan payments would be your second largest expense after housing and would be close to who you are. food expenses and combined transport. You would need to take drastic steps to make loan repayments, possibly giving up all retirement savings and cutting back on entertainment. Even so, you may not be able to find ways to make ends meet. Someone earning around $ 60,000 could probably afford this payment more easily.

Your budget with $ 100,000 in student loans (nearly 2.5% of borrowers). If you take out loans of $ 100,000, you’d better be a doctor or renovate your old room with your parents at mom’s and daddy’s expense. Monthly loan repayments would increase by about $ 1,075 and could easily absorb at least half of the average graduate’s take-home pay.

At this point you are essentially making a second rent or mortgage payment each month. Although you have a place to live, you don’t have money for other important things like food, transportation, and clothing. Since it’s a choice between paying student loans or paying rent – and student loan repayments aren’t optional – you’re definitely going back to mom and dad. Keep in mind that the shortest loan term is 10 years, which means you’re going to be 32 before you move out.

You would need to earn between $ 80,000 and $ 90,000 to comfortably pay off this payment.

Your budget with $ 150,000 in student loans (nearly 2% of borrowers). Even a third job would probably not be enough to facilitate the burden of the average graduate who had raised $ 150,000 in student loans. Monthly payments would be around $ 1,700 or most of your take-home pay. You would easily need a six figure salary to fit this expense into your budget.

Bottom Line: Easy access to student loans is a good thing. Most people have to go into debt if they want to graduate and reach their full career potential. However, the availability of student loans is a double-edged sword, as many borrowers go into debt this far. go beyond the reality of future starting salaries.

If you are borrowing or planning to borrow for college, make sure you have thought long and hard about how much you can borrow based on a reasonable starting salary. That’s it – or pray your parents don’t change the locks.

[ad_2]

About Coy Lewallen

Check Also

The crypto asset market in Indonesia is weakening. What is the solution?

Jakarta, Indonesia, October 27, 2022 /PRNewswire/ — The Crypto Asset Industry in Indonesia is still …

Leave a Reply

Your email address will not be published.