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Posted on March 11, 2020

How Much Student Loan Debt Is Reasonable?

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By: Janet Rhodes Friedman CFP® CDFA® Wealth Advisor –

High student loan debt is a reality for many families. In fact, the majority of college students in the U.S. face debt when they graduate. According to Forbes, about 66% of borrowers who graduated from public colleges have student loan debt.

This begs a few questions: “Is an expensive education really worth it?” and “How much student loan debt is reasonable?”

Of course, the answers depend entirely on what you and your child value (and how much you’re willing to pay for the things you value). That’s why there are two questions that you have to answer before you can decide if it’s worth taking on some student debt: “What are my child’s life, career, and financial goals?” and “How much is my child’s education worth?”

Let’s consider how the answers should affect your student loan debt and college planning strategy.

What are my child’s life, career, and financial goals?

All too often, I’ve seen parents completely neglect this first question. Perhaps they feel that their children have the same goals that they do—without ever asking them. Or maybe they think they already know their children’s goals—again, without asking.

It’s good to remember that your child might have different priorities than you, or that her goals might have changed since the last time you spoke.

Why is this important in the context of paying for college? It’s relevant because student loans could hold someone back from important goals, such as:

  • Starting a business immediately after college
  • Getting married or taking some other life step
  • Pursuing nonprofit work or other typically low-paying career paths
  • Traveling or having other enriching experiences

Student loan debt may affect your child’s ability to reach these goals. So, you have to ask yourself, “What does my child really want?”

How much is my child’s education worth?

Students and parents should keep in mind the prospective income of a career when they decide how much student loan debt is reasonable. A good rule of thumb is that total student loan debt at graduation should be less than the student’s starting salary. If total debt is less than annual income, the borrower should be able to repay her student loans in 10 years or less. On the other hand, if total debt exceeds annual income, the borrower will struggle to repay her debt and will need some other method of repayment.

Moving forward

It’s possible, after weighing your options, you may arrive at the conclusion that your current payment plan is untenable. If this is the case, don’t give up. With a few changes, you can make this work!

Seek a good “financial fit” for your child’s education. How can this be done? Consider schools that are not “name-brand.” You will find that many of these schools are of high-quality and offer more financial aid options. You should also think about alternative payment options, such as grants, scholarships, savings, taxable investments, Roth IRAs, and trust funds.

Most importantly, have open discussions with your children about what you can afford and how much they will contribute. Don’t wait to have this discussion, no matter how awkward it may seem.

Although you now have a better grasp on how much academic debt is reasonable, there are still many other details that merit careful consideration in student loan debt and college planning strategy. If you ever feel apprehensive about how to move forward, be sure to reach out to an expert.

As a financial life planner, I specialize in helping my clients to work towards their life vision and balance their priorities. I’d love to help you figure out your children’s college plan, as well as help you to integrate it into your larger financial plan. Feel free to schedule a complimentary Financial Life Plan Discovery Session with me if you’d like to learn more.