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Reasonable Debt

A reasonable amount of student loan debt is debt that the borrower can afford to repay in a reasonable amount of time, such as within 10 years after graduation.

Generally, students who graduate with too much debt tend to delay life-cycle events, such as buying a car, buying a house, pursuing more advanced education (e.g., graduate or professional school), getting married, having children, saving for retirement and saving for their children’s college educations. Every additional dollar in student loan payments is a dollar less that is available for other priorities. The average monthly student loan payment is about the same as the monthly payment on a car loan.

If total student loan debt at graduation, including capitalized interest, is less than the borrower’s annual starting salary, the borrower will be able to repay his or her student loans in ten years or less. This corresponds to monthly loan payments that are between 10% and 15% of the borrower’s gross monthly income. Ideally, students should borrow less, since this rule of thumb identifies the limits of affordable debt unless the borrower adopts a very austere lifestyle after graduation. Borrowers should avoid treating loan limits as targets.