How Much In Student Loans Is Too Much

Last Updated on May 24, 2022

It’s a question that many students ask themselves every day: “How much in student loans is too much?”

The answer is, it depends. The cost of your education will vary depending on the school you attend, the degree you pursue, and the length of time it takes for you to complete your studies. You’ll also have to factor in any financial aid from the government and other sources, as well as scholarships or grants (which may decrease or increase based on your academic performance).

As a general rule of thumb: when it comes to student loans, more money is not always better. While it might be tempting to borrow a lot of money in order to pay for an expensive degree program, like medical school or law school, this can end up being more trouble than its worth. If you’re going into debt for something that isn’t really necessary (like earning a business degree at an Ivy League university), then it’s probably best not to take out loans at all because they’ll just make things worse later on when they come due!

How Much Student Debt is Too Much? Avoid Overborrowing | Ascent Funding

How Much In Student Loans Is Too Much

You should also consider other debt and maintain a manageable debt-to-income ratio . The student loan payment should be limited to 8-10 percent of the gross monthly income.

For example, for an average starting salary of $30,000 per year, with expected monthly income of $2,500, the monthly student loan payment using 8 percent should be no more than $200.

Allocating more than 20 percent of discretionary income toward student loans can overburden your student and make it impossible to repay their loans in a timely manner.

What Are Some Simple Borrowing Rules to Follow?
After evaluating all the statistics and looking at the student loan data, you might be overwhelmed. If so, here’s a simple checklist to follow:

Do your research (look at salaries, career growth patterns, and loan repayment amounts).
If necessary, investigate cheaper alternatives (community college, public universities, or work and pay as you go).
Don’t borrow more than the first-year salary after graduation and consider debt-to-income ratios.
Borrow only what you truly need for educational expenses.
If you follow these simple rules of borrowing, you should be able to keep your student’s college debt manageable. While student loans can help families pay for college, it’s important to remember over borrowing can lead to crushing debt after graduation.

student loan calculator

Before using the student loan calculator above, come prepared with a few pieces of information about your loan.

Loan amount

Loan amounts vary depending on whether you’re exploring a federal or private student loan. The loan amount you’re offered might also be limited based on your enrollment level (e.g., undergraduate versus graduate or professional student) or degree program.

Federal student loan amounts

Undergraduate students:

  • Direct Subsidized Loans: Up to $5,500 annually.
  • Direct Unsubsidized Loans: Up to $12,500 annually.

Graduate students:

  • Direct Unsubsidized Loans: Up to $20,500 annually.
  • Direct PLUS Loans: Up to the school’s reported cost of attendance, minus other financial aid received.

Parents of dependent undergraduate students:

  • Parent PLUS loans: Up to the school’s reported cost of attendance, minus other financial aid received.

Private student loan amounts

Loan amounts for private student loans can vary by lender. Each lender sets its own borrowing criteria, annual borrowing limits, interest rates and repayment terms. In general, private student loan lenders offer loan amounts that cover the gap between a school’s cost of attendance and any other financial aid a student receives. Some lenders also impose lifetime borrowing limits, which may be up to $150,000 or more for some degrees. Regardless of whether you borrow federal or private student loans, borrow only the amount you need per school year after exhausting all grant and scholarship options. If you must take out loans to finance educational gaps, consider maximizing federal student loan limits before turning to a private student loan, as federal student loans come with additional benefits like income-driven repayment plans and standardized hardship programs.

Loan term

Your loan term is the amount of time you have to repay the loan in full. For federal student loans under a standard repayment plan, the default loan term is 10 years. However, student loans that are under an alternative payment plan offer terms from 10 to 25 years. Like private student loan amounts, private student loan repayment terms vary by lender. Terms for private student loans can be as short as five years and as long as 20 years. A shorter loan term can help you save more money on interest charges during your repayment period but result in a larger monthly payment. Some lenders offer lower interest rates as an incentive for a short term length. On the flip side, a longer term for your student loans will lower your monthly payment but will accumulate more interest charges over time. Before borrowing student loans, make sure you know all of the term options your lender offers so you can choose the right path for your financial needs.

Interest rate

The interest rate you’re offered depends on the type of lender you’re pursuing and your financial picture. Federal student loans offer the same interest rate to all borrowers, regardless of credit score or income. Private student loans, on the other hand, will often do a credit check and set interest rates according to your creditworthiness. The higher your credit score, the lower your interest rates. Keep in mind that the lowest interest rates advertised on lender websites may not be available to you. To find out what interest rates you’ll receive, take advantage of lenders’ prequalification features, if available. Prequalification allows you to input basic details about yourself and your desired loan in exchange for a snapshot of the rates and terms offered.

Additional factors to consider when calculating student loan interest

When calculating your student loan interest, keep in mind that there are a few other key factors at play:

  • Fixed vs. variable rates. Unlike federal student loans, which offer only fixed interest rates, some private lenders offer fixed or variable student loan interest rates. A fixed rate won’t change during your loan term, but variable rates can decrease or increase based on market conditions.
  • Term length. How short or long your student loan term is dramatically changes how much total interest you’ll pay. In addition to calculating your total interest paid, the student loan calculator above shows you how much of your monthly payment goes toward interest; to see this view, click on “show amortization schedule.”
  • Credit score. Private student loans require a credit check. The stronger your credit, the more likely you’ll be offered competitive, low interest rates. Borrowers shopping for bad credit student loans might be approved at a higher interest rate, which means more money spent on interest charges overall.

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