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How Much College Debt is Too Much?

filling out student loan application paperwork
Michelle Richardson

Written by Michelle Smoleyon April 11th, 2024

I began my financial aid counseling career working in a community bank. I provided families with paper FAFSAs and assisted them in completing the application in person. Through the years, the process, products and regulations in the financial aid industry may have changed, but the reward I feel when I help students and families has not. During my tenure at the Mayo Clinic College of Medicine, I had the opportunity to work with a very diverse group of students working towards all types of degrees from certificate programs to doctoral degrees. From there, I worked in student loan finance and became very passionate about financial literacy. I love educating families about various financial vehicles and assisting them in determining what is the best financial strategy to pay for college.
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by Michelle Smoley, former Assistant Vice President at Chase Student Loans With the current cost of obtaining a college degree, many students and parents find they need to finance a portion of the costs. Knowing how much debt is too much to take on can be helpful for the class of 2024 who are about to make their final college selections. Many students and parents are shocked when they find out there are annual federal student loan borrowing limits. A college undergraduate can borrow $5,500 as a freshman, $6,500 as a sophomore, and $7,500 as a junior and senior, totaling $27,000 in principle borrowed during their four years of college. According to the College Board, these limits align with the average national student loan debt of $29,100 for four-year undergraduate students reported for the 2020-2021 academic year. So, is $29,100 too much debt for a student? Federal student loans are typically repaid over a standard ten-year period, and the estimated monthly amount for $29,100 at a 5% interest rate calculates to around a $310 payment. Is that too much debt? A general rule of thumb for borrowing is that a college graduate should not take on more debt than their anticipated starting salary for their expected career. Most post-undergraduate positions have starting salaries above the $29,100 average debt amount. The Bureau of Labor Statistics is a good source for finding accurate starting salaries. Families need to consider debt for all borrowers before signing on the bottom line. Often, there is a need to finance more than the annual federal student loan limit and borrow additional funds through the federal Parent Loan for Undergraduate Students (PLUS) program or a credit-based, private student or parent loan. A parent can borrow up to the full cost of attendance less any scholarships, grants, or federal loans. How much is too much for a parent to borrow or cosign with the student? This answer depends on available parent resources and other debt obligations. At times, parents make a deal with their student that they will borrow a parent loan or act as a cosigner but ultimately the payment will be the student’s responsibility after they graduate. According to Federal Student Aid, average parent PLUS loan debt is around $30,000. If this debt is passed along to the college graduate, their debt load is approximately $60,000 when combined with maximum federal student loan borrowing. Instead of an estimated monthly payment of around $300 a month, that payment has now doubled. This debt could be too much for a college graduate to begin paying, especially with additional expenses as they transition to adulthood. In counseling college graduates and their families in managing student loan payments, I have worked with parents who have borrowed well above the average parent loan of $30,000, especially if they have multiple children in the family. These payments have become a burden for everyone involved. As families are making college decisions for the upcoming academic year, I encourage them to take the time, look at the costs of college for the full four to five years, and estimate the total of all student and parent debt payments. If a family has to borrow an additional $20,000-30,000 per year, the total indebtedness may be just under $150,000. Parents should ask themselves: Am I willing and able to repay that debt, or am I comfortable expecting my student to begin their career with that kind of debt load?

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