How Much Student Loan Debt Is too Much?

Student loan debt has become a crisis for many Americans who have pursued higher education. In fact, total outstanding student loans reached $1.6 trillion nationally in Q4 2023, with most of this debt spread across approximately 43.2 million borrowers who have federal student loans, according to the U.S. Department of Education. In order to not have more student loan debt than they need, borrowers should avoid taking out an amount greater than their expected first-year salary in their chosen field.

Factors to Consider When Evaluating Student Debt

The best time to consider how much student debt you can handle is before enrolling in college. After all, you’ll have fewer options regarding saving for school if you’re already enrolled. 

You’ll want to consider several factors as you decide how much student debt is enough for you:

• Future income potential: How much you earn in your future career can determine how much student debt you can handle. That said, you should keep in mind that earning a degree typically pays off. As an example, data from the U.S. Bureau of Labor Statistics shows that individuals with a high school diploma earned an average of $853 per week in 2022, compared to those with a bachelor’s degree ($1,432), individuals with a master’s degree ($1,661), and workers with a professional degree ($2,080).
• Career prospects: Some careers have better career prospects and room for advancement than others, in addition to much lower unemployment rates. That said, government data shows a direct correlation between higher levels of educational attainment and lower unemployment rates, meaning your career prospects will be higher on average if you earn a college degree.
• Monthly payments: Your threshold for affording student loan payments could be higher or lower than your peers based on your personal finances and lifestyle.
• Potential for loan forgiveness: If you plan to work in public service, you could potentially make payments with an income-driven repayment (IDR) plan for 10 years with Public Service Loan Forgiveness (PSLF) and have your remaining loan balances wiped away thereafter. IDR plans normally let you pay off student loans for 20 to 25 years before forgiving any remaining loan balances.

General Guidelines for Assessing Student Debt

Federal student loans come with borrowing limits for each school year. However, many students make up the difference with private student loans, or they borrow money for a higher education in other ways.

Regardless, one rule of thumb for student debt is that you should try not to borrow more than the first year salary you can expect in your chosen field. This means that if you expect to earn $38,000 in the first year of your career, you should try to borrow $38,000 or less for your degree.

Student Loan Debt Examples

How much student loan debt you have will play a direct role in the financial consequences you’ll face. Your future student loan payments may be higher or lower than you expect. The payment plan you choose for your student loans will also impact how much you owe each month until your loans are paid off or forgiven.

Consider an example using the Loan Simulator from Federal Student Aid that shows how monthly payments might look after graduation. This simulator estimates that a student who earns a four-year degree from a public institution of higher education will end their college journey with $26,946 in student loan debt and an average interest rate of 3.9%.

With this information, the U.S. Department of Education estimates that the monthly payment on a standard 10-year repayment plan would be $272 each month. This means that, over the span of 120 months, the borrower would pay a total of $32,585 toward their student loans, including interest charges.

However, the tool also reveals that payments could be much lower for borrowers who opt for an IDR plan. Based on an annual income of $30,000 for a single borrower with $26,946 in student debt, for example, it could be possible to pay as little as $0 per month with the new Saving on a Valuable Education (SAVE) Plan or as little as $68 with the Pay As You Earn (PAYE) Repayment Plan or the Income-Based Repayment (IBR) Plan.

Resources for Managing Student Debt

Whether you are trying to avoid borrowing too much for school or looking for ways to manage the debt you already have, there are plenty of resources available. Consider these tools and informational sources to help you effectively manage debt and choose the right repayment plan.

• IDR plans: Learn about IDR plans for federal student loans that base your monthly payment on your income and family size.
• Loan Simulator: Use the Loan Simulator at Federal Student Aid to estimate what your monthly payment might be based on how much you borrow for school.
• Federal vs. private student loans: Learn about the differences between private and federal student loans, including the fact that private student loans don’t qualify for federal protections like deferment or forbearance.
• Repayment Plans: Compare repayment plans for federal student loans, including the standard 10-year plan, extended repayment options, and IDR plans.
• Student Loan Forgiveness: Look into federal student loan forgiveness plans like Teacher Loan Forgiveness and PSLF to determine whether they’d be an option for you.

How to Avoid Excessive Student Debt

When it comes to having too much student loan debt, you can reduce your debt load by taking early action. Consider taking these steps to help you borrow less for school.

Attend a Public School

Attending a public, in-state school can cost considerably less than attending an out-of-state school or a private institution of higher education, according to CollegeBoard data. For the 2023–24 academic year, for example, average tuition and fees at public four-year in-state schools was $11,260 nationally. Compare that to $29,150 for tuition and fees at four-year, out-of-state public schools and $41,540 for private nonprofit schools.

Scholarships and Grants

Apply for scholarships and grants you may be eligible for during each year you plan to attend college. Some of the best places to search for scholarships and grants include college and university financial aid offices, public libraries, local foundations, businesses, and ethnic organizations, among others. 

You can also search for scholarships and grants online with websites like Sallie Mae’s Scholly, the U.S. Department of Labor’s Scholarship Finder, and CollegeBoard Scholarship Search.

Work Part-Time

Working part-time during school is another way to keep costs down, reducing the need for extra student loans. It may be possible to find employment on your college campus, but you could also get an off-campus job at a restaurant, a retail store, an office, or anywhere else that might let you work part-time with flexible hours and fair pay.

The Dangers of Borrowing too Much

Student loans come with many of the same risks as other types of loans, including the risk of borrowing more than you need. This is especially true for federal student loans for graduate students and private student loans, since they have much higher borrowing limits.

Some dangers of borrowing too much include:

• Financial stress: Even with IDR and loan forgiveness plans, you are still required to make monthly student loan payments for a decade or longer. These payments can leave you with less discretionary income at the end of the month, which can dampen your lifestyle and strain your finances.
• Challenges buying a home: Having to make significant student loan payments can make it more difficult to save up the money for a down payment to purchase a home. This could potentially delay homeownership altogether.
• Lengthy repayment plans: Note that repayment plans for student loans often last up to 25 years, which is a long time to have to make monthly payments. You can pay off your loans over a shorter period of time, but your monthly payment will likely be higher if you go that route.

The Bottom Line

Student loans can be a valuable tool for paying for college, and earning a degree can lead to higher lifetime earnings. However, there’s a point where borrowing becomes unreasonable and where the monthly payments for student loans can become a strain.

If you plan to take out student loans, you’ll be better off in the long run if you borrow exactly what you need to earn a degree and nothing more. This can be accomplished by selecting a more affordable school, applying for scholarships and grants, working during college, or all of the above.