How Much College Debt is Too Much?

Here's a piece from Kiplinger's that gives their thoughts on how much college debt is too much. Their thoughts:

To get an idea of how much debt is reasonable, start with the Student Loan Advisor calculator. Students plug in their field of study, expected graduation date and loan interest rate. The site gives them the maximum loan amount they can safely handle, assuming they want to limit their monthly payments to between 10% and 15% of their income.

The key factor here: what field you plan to go into (and the associated expected salary for that field.) In other words, if you go into teaching and expect to make $35,000 a year, then the suggested amount you can borrow is less than what is suggested if you go into engineering and expect to make $60,000.

Sounds reasonable to me. It's just like any investment -- the more you expect to get out, the more you're able/willing to put in.

The problem is that a four-year degree generally costs the same (at the same university) whether you're studying education, engineering, business or history. That means that students who are selecting lower-paying professions will need to fund a larger portion of their college education costs from non-loan sources. Not a bad thing really, but something that certainly needs to be taken into account for those who will need to use loans as a major source of college funding.

Your career is your most important financial asset. If you manage it correctly, you can make millions of dollars more than someone who doesn't. A key part of this is starting off well -- and getting a college education is the best way to jump-start your career. As such, borrowing money to help you get a college degree is a good financial move -- as long as you borrow within reason. Of course, there are lots of things you can do to save on college costs to make the amount you borrow as small as possible.

My suggestion: get the best education you can while borrowing as little as you can. I went all the way through to get an MBA with only $5,000 in debt. Granted, that was 20 years ago so maybe it would be $20,000 today (which is still a steal given it includes undergraduate and graduate degrees and the starting salaries of today's MBAs), but still, there's no reason to be borrowing outrageous sums to fund a college education.

Comments

[cami]

I really like this tool; the percentage of income is a feature I haven't seen on other student loan calculators. I've been playing around with it to see what percentage of my income my loans could potentially take up after I graduate. I also like it because you can compare how different repayment schedules (five years versus ten years) would effect your budget. What might be interesting was if this was somehow tied into some BLM stats on the demand from different fields. That way people would know not only their hypothetical earning potential, but also the ability to get a job in their desired field.

[SOK]

Great post. I'm a physician with medical school debt that rivals a mortgage but although cash strapped now am happy with my work and my potential to pay this debt down as the time passes. Debt should be viewed as a necessary evil so take only what you need to be successful.

[tinyhands]

Note also that debt can be a cashflow strategy. I paid for my MBA completely out of pocket, but if I had found a loan that didn't start payments until after graduating, I could have held onto my own money a bit longer.

[Minimum Wage]

I have a useless liberal arts degree (couldn't afford law school) and earn my state minimum wage.

If you end up making minimum wage, ANY college debt is too much. And you can plug in any "expected" income you like, but if the money doesn't follow, you are hosed.

[Minimum Wage]

It's even better than just being able to hold onto your cash a bit longer. I know someone who took their student loan money and started buying rental properties. Is this a great country or what?

[Minimum Wage]

It's even better than just being able to hold onto your cash a bit longer. I know someone who took their student loan money and started buying rental properties. Is this a great country or what?

[Moneymonk]

The like the point that you made all degrees cost the same.

I would rather teach my children to go after the high paying degrees to offset the loan debt.

[Anitra]

Moneymonk: I'd encourage kids to study what they love, but to have a solid plan of how they're going to support themselves, with multiple options; I have friends who realized 3.5 years into a degree that they had NO desire to keep doing that activity (in one case, teaching, in another, biochemistry). It took them a while to find a job that could keep them afloat.

In other words, your degree doesn't have to relate directly to a job after school, but if it doesn't, you need to be cultivating skills NOW that will keep a roof over your head.

[Minimum Wage]

This has long bothered me. The cost of, say, a science or engineering or business degree is greater than the cost of a liberal arts degree, simply because it costs more to hire faculty in science, engineering, and business, while liberal arts faculty are a dime a dozen. So why should liberal arts students have to subsidize the education of the highly-paid?

[Minimum Wage]

I paid tens of thousands of dollars in direct costs, plus more tend of thousands of dollars in opportunity costs (working min wage jobs instead of going out and getting a good job when it was still possible). So I paid lots of money for this degree, why can't I sell it and get at least something for it?

[Minimum Wage]

Which reminds me...at this point, should I just drop any mention of college when applying for a job? It seems that putting my degree on a resume probably makes me less employable today than not putting it on a resume.

[Ron]

You don't need to take on any debt to go to college. I have nothing against debt. I have a mortgage and I use credit cards. But believing you must obtain a loan to get a degree is 20th and 21st century thinking. "Full time" school isn't really full time and you are allowed to work your way through paying as you go. It could take longer but not as long as it will to pay off a student loan. It's terrible that kids today are starting their careers with a debt the size of a small house (or larger). We really need to change our thinking on this issue.

Ron

[Livingalmostlarge]

I'd love to konw how to get an MBA for $5k. I think we're going to get out owing about $20k.

[Christopher]

I did the evil of student loans through my undergrad (I just finished). To give you an idea: my school cost about 30K/year in total. I ended up with about 30K in debt. I don't think I ended up too badly considering I spent the full four years there.

That said, my degree, Bachelors of Music, requires that I have to go on to get graduate degrees if I want to work in the field. Primarily I'm a private instructor (guitar), which can be a very lucrative career. Being able to charge $20/half hour lesson (and people pay that, by the way) and have about 40 students/week (that's 20 hours/week of teaching) would generate around 3K/month pre tax. That's not outstanding, but not bad.

I'm choosing to go straight through to get a masters because it would allow me to teach at various colleges (even as adjunct faculty member) and widen my student base. Here's the best part: if you're good enough you get to go to school for free as a teaching assistant. Apparently, I made the cut because my grad school is going to literally pay me a stipend to work for them and wave all my tuition and fees.

For those reading this thinking about scholarships opportunities, the first place you should go is your high school guidance councilor's office and local chamber of commerce. My first year of college I received well over 5k in random local scholarships I applied for--I even got a scholarship for working at the grocery store I did during high school (no joke).