How Much Student Loan Debt Is Normal?

Times have changed. Where our parent’s choice for going to college was mostly yes or no, our answer is more on the options we have.

Student loan debt being one of the most popular options, we can now get the education we need to build the career we dream of. That is until we realize how much that debt can hold down our lifestyle.

During my research, all I see is the negatives of student loan debt, and that’s not a mistake.

Student loan debt can cripple people from moving forward, even a decade after graduating school. Your hard-earned income comes in on a monthly basis, only to have a good chunk go away to almost never-ending debt.

To make things worse, student loan debt is not forgivable, if you stop making payments, your debt is turned over to a collection agency to settle affairs.

I hope you’re reading this early on where you’re deciding how to utilize student loan debt as the tool that it is. It’s neither good or evil, it’s just a tool for the using.

And while many many websites speak about the negatives of student loan debt, I want to bring up a possibly better question.

How much student loan debt is good?

This is of course a relative question, totally based on your unique situation, but we can still get ahead in this article by giving you a few ideas on how you can figure out the right number for you.

This, hopefully, can help you get your education and also find ways to comfortably pay off your debt without struggling after your education is over.

How much debt is normal?

My student loan debt

The best way to think about this, is to really sit and visualize how you’re life will be in the future.

What are you plans for school, and what about after that?

Let’s say you want to go to college to get a degree in Accounting, and be a CPA afterwards.

I’m making these numbers up, because you’ll never really be able to find true ones online. You have to do your research, and call around to get some ideas on the right student loan for you.

If you’re in state, you’d save a lot more than someone going to school out of state. If you stay at home or live in a dorm/apartment, things will look different. So consider these things on top of your career goal, it all makes a difference.

Let’s say a 4-year education to become an Accountant costs $56,000.

The typical yearly salary of an accountant is $68,538 according to Glassdoor. That’s probably after a few years of work, you can lower it as you start off.

With a $56,000 student loan, and a salary of maybe $50,000 for the first few years, we have some numbers to work with.

Now, we’ve thought about our education path, and potential income.

Now we want to think about how we might pay this off in the future.

Life changes, but it’s always a great idea to practice simulating things like this to be aware, instead of signing up for a loan only to figure out how you’ll pay for it later on. Don’t do that, you’ll just stress a lot later.

When you get a student loan, the loan starts the second you graduate from college. Loan companies usually like to collect as much as they can, and it’s usually income-based collections.

If you’re earning $50k a year as a new Accountant, the loan company would like 10% of that usually.

The goal here is to punch that loan in the face, by working on paying it off faster. Think 20%.

And don’t just think about it, plan it out. Use my personal finance Google Sheets file for investment/saving planning, as well as figuring out what your future costs might be.

If you don’t know, make it up. Figure out what local apartment/town house costs might be, and any other expenses and see what it would amount to.

Following our accounting example, if we made $50k a year, that’s just over $4k a month. Let’s forget about tax here just to make this example clear.

Say you did the work and figured out that your housing, food, utilities, gas, phone, car payment, etc. bills all add up to a clean $2k a month.

You have another $2k for loans, savings, investing.

My recommendation when you’re this far, is to plan to invest modestly, save normally, and pay off that loan rigorously.

  • Invest 10%
  • Save 30%
  • Pay off loan 60%

A student loan debt can be crippling to your future, and the interest is no good. It’s better to use your earned money to pay off that loan than to invest in something not guaranteed.

I’m 100% for investing in the markets, there’s just a time for it.

I started my Roth IRA in my 20s, and I highly recommend you do that with the 10% per month you allocate towards investing.

Put your savings money in your bank account (ideally with high interest), and use all your other money to pay off that loan as much as possible.

Doing this for a few months, you can log into your loan account online and see how your loan is reducing at a much quicker rate than if you were paying the minimum.

A brief checklist to see if the student loan is okay

Paying off student loans
  • Figure out your educational expenses
  • Figure out your potential future salary
  • Figure out your potential future lifestyle (income/expenses)
  • If you can pay off the loan with more than 10% of your monthly income, and be able to pay it off in 10 years or less, it might be okay

Again, everything is relative here. I’m sharing my mindset with how I would do things if I was starting off with college again.

It’s all about planning by making up numbers in the beginning, and updating the plans over time as numbers get more realistic and/or change.

I hope this article was helpful for you, please comment below with questions or feedback you have.

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