How To Avoid Too Much Student Loan Debt

Often times, the key to avoiding too much student loan debt is understanding how much student loan debt you can safely afford to take on. Below you will find some helpful tips on student loan debt projection and how to know when you are borrowing too much. It goes without saying that the least amount of student loans you have to take out, the better, but for most students, funding college without student loans is not an option.

1. Projected Salary and Loan Affordability

If you’re a current college student, it may be difficult to calculate your projected salary/income after graduation. However, there are salary and job-based websites that can give you a rough estimate of what a starting salary is for your intended profession. These estimates can be really helpful when figuring out how much student loan debt you can afford. Most financial experts recommend that your monthly student loan payments should not exceed 10% of your expected monthly gross income once you graduate college. Additionally, you should never borrow more in student loans than you expect to make in your first year out of college. For example, if you expect to make $50,000 annually after graduation, your total student loan debt should not exceed $50,000.

Tools to Estimate Your Salary and Affordability

To calculate how much you can borrow responsibly, websites like Bureau of Labor Statistics provide detailed salary information for hundreds of professions. Additionally, websites such as Payscale or Glassdoor offer insights into what individuals with similar degrees are earning across various industries. These resources help ensure you’re borrowing within reasonable limits and aligning your debt with expected income levels.

Why 10%?

The 10% figure is commonly recommended by financial experts because it strikes a balance between loan repayment and maintaining financial stability. Spending more than 10% of your gross income on student loans may place too much strain on your finances, potentially affecting your ability to pay for housing, utilities, and other necessary expenses. By limiting loan repayments to 10% of your expected income, you ensure that student debt won’t become a burden that impacts your financial well-being after graduation.

2. Parents of College Students Taking Out PLUS Loans

If you’re a parent of a college student and are taking out PLUS loans to help your child pay for college, financial experts have some advice on managing debt as well. In these situations, it’s critical that all of your debts—including mortgage payments, credit card bills, car loans, and education loans—should not consume more than 35% of your gross income. This helps ensure that the student loan burden doesn’t overwhelm your finances or create future financial strain. If you find that your total debt exceeds this threshold, it may be a good idea to revisit your budget or explore other funding options like scholarships or grants for your child.

Managing PLUS Loans

PLUS loans, which are federal loans for parents of dependent students, can be an effective way to help pay for a child’s education. However, they often come with higher interest rates than Direct Subsidized or Unsubsidized Loans. According to the Federal Student Aid website, parents should carefully consider the total debt load they’re taking on with PLUS loans, as well as the potential for long-term repayment challenges. Taking out a PLUS loan could also affect your ability to meet other financial goals, like saving for retirement or paying down other debts. Therefore, it’s important to only borrow what is absolutely necessary for your child’s education and look for other sources of financial aid where possible.

Consider Refinancing

If you have already taken out a significant amount of PLUS loans and are feeling overwhelmed by the repayment process, refinancing could be an option. Refinancing allows you to consolidate your loans and possibly get a lower interest rate. However, refinancing federal loans into private loans means losing access to federal protections like deferment, forbearance, and income-driven repayment plans. Make sure to weigh the pros and cons before deciding to refinance.

3. Track Your Debt Carefully

Once you start borrowing student loans, whether federal or private, it’s important to keep track of how much you owe. Many students take out loans from multiple lenders, which can make it easy to lose track of how much debt you’re accumulating. As a result, it’s essential to regularly check your student loan balance through your loan servicer’s website and ensure that all the loans you’ve taken are accounted for. Keeping an eye on your debt can help prevent you from borrowing more than you need and help you stay on top of any potential interest rates, repayment schedules, or deferment options.

Creating a Loan Tracking System

To avoid confusion and prevent missing payments, consider creating a simple loan tracking system. Use an Excel spreadsheet or a budgeting app like Mint to list all your loans, interest rates, and repayment schedules. You can even set reminders for when your payments are due. Many financial apps allow you to link your student loan accounts directly, making it easier to keep track of balances, interest rates, and payment due dates.

Federal Loan Servicers and Repayment Plans

Federal student loans are managed by loan servicers who are responsible for collecting your payments. Each servicer has a unique online portal for tracking your loans. You can log in to these platforms to view your loan balance, payment history, and upcoming due dates. Additionally, federal student loans offer multiple repayment plans that can be tailored to your income and financial situation. Options such as Income-Driven Repayment (IDR) and Pay As You Earn (PAYE) are designed to help make payments more affordable based on your income and family size.

4. Avoid Borrowing More Than You Need

It’s tempting to borrow more than necessary when student loans are available, but this often leads to financial problems later on. It’s important to only borrow what you absolutely need to cover tuition, books, and other essential living expenses. Avoid using private student loans for non-essential expenses like vacations or luxury items, as this can quickly escalate your debt without providing any real value. Instead, seek out scholarships, grants, work-study opportunities, and other forms of financial aid that can help reduce the amount of loans you need to take out.

Stick to the Essentials

When you’re deciding how much to borrow, be sure to only use the loans for educational expenses. This includes tuition, textbooks, required equipment, and living expenses. Avoid borrowing for luxuries like dining out, entertainment, or travel. Excessive borrowing for non-educational purposes will only increase your debt load and make repayment more challenging down the line.

Explore Scholarship and Grant Opportunities

There are many scholarships and grants available to students that can help you reduce the amount of student loans you need to borrow. Start looking for these opportunities early—scholarships and grants can be highly competitive, so applying to multiple scholarships increases your chances of receiving financial assistance. Websites like CollegeWhale.com offer databases of scholarships that you can filter based on your interests, academic achievements, and other criteria.

5. Explore Loan Alternatives

There are plenty of alternatives to student loans that can help supplement your college costs. Scholarships, grants, and even employer tuition reimbursement programs are great ways to reduce your reliance on student loans. Consider applying for as many scholarships and grants as possible, both from your college and from external sources. Some scholarships even apply directly to your tuition, meaning you may be able to graduate with less debt or even avoid borrowing loans altogether. If you’re working while in school, look into whether your employer offers any educational benefits that can help cover the cost of your education.

Employer Tuition Assistance

Many companies offer tuition assistance programs that help employees pay for college. These programs often cover a portion of tuition or reimburse you after you’ve completed courses with a passing grade. Check with your employer to see if such benefits are available, and consider pursuing courses or certifications that align with your career goals. Not only will this help reduce the financial burden of your education, but it could also lead to career advancement within your current job.