Student loans are scary: How much can you afford?

By Joe Messinger, CFP®

October 30, 2020

2 min READ

Do you know what is scary?! We’re not talking zombies, ghosts, or witches. We’re talking scary student loans! How about these facts?

• The current outstanding student loan debt in the US is $1.676 TRILLION!
• The amount of student loan debt is rising about $2,858 PER SECOND!
• • Only 41% of students will graduate in 4 years.
  • According to the College Scorecard, only 678 public colleges had a graduation rate over 50%.

• Student loan debt for adults age 50 or over is growing at a staggering rate from $47 billion fifteen years ago to $289.5 billion in 2018.
• The Class of 2019 graduated with an average of $29,900 in student loan debt, and 14% of their parents took out an average of $37,200 in federal parent PLUS loans.

While those facts may not make you hide behind your pillow as if you just saw Freddy Krueger, they probably will up the worry level for your future college-bound student.

What is a parent to do?

We’ve talked about these facts before, and we truly are not trying to scare you (well, maybe a little bit). We want you to give serious thought to your plan BEFORE you start visiting colleges. We are on a mission to end the student debt crisis one family at a time–for you to make informed college decisions to “know before you go”.

In our experience, parents have a hard time saying no to their kids when it comes to college choice, and they will “do whatever it takes” to send their child to a college they simply cannot afford. The above statistics prove that point. This pattern has to stop. With over 2,000 colleges in the United States, you can find an excellent school that your child will love.

What parents sometimes don’t realize is the impact on their child’s future when setting a budget becomes secondary in the thought process.

• It isn’t just about the money.
• Students need to understand the burden of that debt.
• Debt saddles graduates for decades to come.
• Student loans hold people back from being their best and following their dreams–choosing jobs because of salary, keeping them from buying a home, saving for retirement, or getting married and starting a family.

We realize debt free college just isn’t realistic for most families.

Our philosophy is your level of debt should be commiserate with your income potential–no more than 1x your projected annual salary upon graduation. For every $10,000 you owe in loans, you will pay roughly $100 per month on the standard 10 year repayment.  If your debt load is $30,000, you’ll pay roughly $300 month and $3,600 for the year.  If you make $36,000 per year, your total payments for the year will be roughly 10% of your gross salary.  (The federal government’s income based repayment plans require 10% of your discretionary income—not a coincidence.)

You can find estimated annual salaries by careers on PayScale.

We know the facts can be scary. We know debt free college is often not a reality. But we also know how to scare away that monster hiding under the bed and shine a light on a sound college funding plan.

Originally published 10/2015
Updated 10/2020