I had this question posed to me and I thought it was interesting, I also think I have a different response than most people would, so let’s talk about it. Are you able to repay too many student loans debts? Is it a dollar amount that defines the answer? Or is it situational
Current student loan debt dilemma
To illustrate what the current student loan debt landscape looks like, I’d like to show some statistics.
- The average student loan debt has increased 2,807% since 1970. After accounting for inflation, the average student debt has gone up 317%
- The average student loan balance at the moment is $37,113.
- Student loan debt totals $1.75 Trillion and is growing six times faster than the national average.
- Those aged 25-34 are most likely to hold student loan debt, but people aged 35-49 hold the greatest proportion of debt – $600 billion.
- Over 25% of borrowers owe greater than $100,000
Student loan debt can be a problem. I do believe it’s a manageable problem though. At least, it’s manageable going forward. That brings me to my next point.
Situational answers
Here’s my no answer, answer. It depends. It all depends.
Another question you should ask is “What school are you going?” Do you think it is necessary to attend a school that costs $50,000 per annum? In most cases, I believe it is not.
I think those are the two biggest questions that help answer the “how much too much” question. Which school will you be attending?
The push to attend college in order to obtain an education is cyclical, I believe. Obviously, there are professions where it is very much needed, but there are others where that’s arguable. I also think that there’s been a lot of innovation done in the educational space that has provided legitimate alternatives to your typical college education. However, as with all things, time will tell.
What are your post-graduation plans
Do you anticipate you’ll earn a lot of money? Do you have a track record of earning high-income potential in your field? It is definitely something you should consider. While you may be keen to attend college, answering these two questions will help guide you in choosing the type of university that best suits your needs (online, public, etc.).).
Mathematical answer
There’s a percentage answer, there’s not really a dollar amount answer because it’s relative to your income. Lenders specifically want to see your income to debt ratio lower than 43%. If your projected income to debt ratio exceeds 43%, you should consider other options.
What is the average starting salary for your job in your industry? If it’s $50,000 per year, that’s where you start. What amount of student loans can you get when you graduate from college? Using the national average, it’s $37,113.
It’s easy to break it down. Your monthly gross income is $4166.67. Your goal is to repay your student loans within 10 years. Your interest rate for that debt is 8.8, so your monthly payment will be $450.28. Your debt to income ratio averages 11%.
If you’re looking for a home to purchase, the proposed mortgage will get added to that monthly student loan payment to help calculate your new debt to income ratio, so pay attention to that as well.
Similar reading:
Is it a good idea for student loan debt to be paid off quickly?
Simple ways to repay student loans debt
The pros and cons of refinancing your student loan debt
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Jacob Sensiba is my name and I’m a Financial Advisor. My areas of expertise include budgets and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com