Follow This Rule of Thumb to Avoid Getting Too Much Into Debt

Families will soon find college admission letters in their mailboxes. As students weigh up where to attend, it’s essential to make sure they won’t borrow too much, experts say.

The consequences of too much student debt can be serious.

“If you borrow too much, you’ll have less money available for other priorities, like buying a house,” said higher education expert Mark Kantrowitz. “You may also need to accept a job that pays better as opposed to a job that matches your career goals.”

Kantrowitz found in his research that less than a third of student borrowers who took out $20,000 or less were stressed by their debt, compared to more than 60% of those who took out $100,000 or more.

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The general rule is not to borrow more than you hope to earn as a starting salary, said Betsy Mayotte, president of the Institute of Student Loan Counselors, a nonprofit organization.

This figure will vary a bit depending on what you plan to study. You can view average annual earnings for different occupations on the US Department of Labor website.

Kantrowitz also holds to this metric. “If your total student debt when you graduate is less than your starting annual salary, you should be able to pay off your loans in 10 years or less,” he said.

Kantrowitz recommends families consider colleges on the basis of “net price,” which is how much they’ll have to pay with savings, income, and loans to cover the bill, after the help that doesn’t need to be reimbursed, including grants and scholarships, is accounted for.

When calculating the four-year net cost, Kantrowitz said, keep in mind that different years may cost different amounts because some colleges only offer grants or scholarships for the first or first two years.

After estimating the total tab, you can determine – after any savings or income you plan to put towards the college bill – if what you would need to borrow is reasonable.

“Often the cheapest option will be an in-state public college,” Kantrowitz said. “They cost a quarter to a third of the cost of a private college but offer an equally good quality education.”

If students find that every college they’ve applied to would let them borrow too much, they can look to others, as many schools are still accepting applications after May 1, Kantrowitz said. The National Association for College Admission Counseling usually publishes a list of colleges with places still available.

One more point: Incoming freshmen should more or less ignore news about the Biden administration’s student loan forgiveness plan, experts say.

Even if the program survives the legal challenges it faces, there is no guarantee that there will be another wave of loan cancellations.

“You should only borrow what you can reasonably afford to repay,” Kantrowitz said.