Unless you've been hiding under a rock for the past few years, you've heard about the "student loan crisis"
I put that in quotes because it's not a crisis IMO. It's a problem caused by people who do not understand basic financial principles. But more on that in a minute.
For now, let's begin with what Wikipedia says about student loan debt:
The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion, with over 7 million debtors in default. In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172.
This level of debt in and of itself is not a problem -- as long as that debt can be covered by the salaries of the graduates with the debt.
The problem comes when a person borrows a huge amount that has no chance of being repaid given his expected graduating salary.
Here's a perfect example of what I'm talking about:
A Wilmington woman has reached her wits' end trying to pay off nearly $200,000 in student loan debt with a $38,000 salary.
Dave Ramsey deals with this sort of issue all the time. Here he is addressing it on a video:
And if you really want to hear him go off on the subject, listen to him have a meltdown over student loan debt. It's a classic. ;)
I've written several times about how to avoid this problem -- it boils down to making sure the debt is reasonable given the expected earnings upon graduation.
I only had a general suggestion on how to deal with this until I recently ran into this suggestion from Suze Orman:
Kids should not borrow more than they expect to make in their first year out of school.
In other words, if you expect to make $30k in your first year out of school, you shouldn't borrow more than $30k for the degree.
This seems like a good rule-of-thumb to me. What do you think of it?