Student loans may be good debt because they are an investment in your future, but too much of a good thing can hurt you.
Students who graduate with too much debt are often forced to delay “life cycle” events, such as buying a car, getting married, buying a home, having children, saving for their children’s college educations and saving for their own retirement. A May 17, 2012 Pew Research Center report, College Graduation: Weighing the Cost … and the Payoff, found that a quarter of student loan borrowers said that their student loan debt burden affected their career choice and made it harder to buy a home, and 7 percent said that repaying their student loans lead to delays in getting married and starting a family. A 2002 student loan survey by Nellie Mae, College on Credit: How Borrowers Perceive their Education Debt, reported that 17 percent of respondents changed career plans because of student loans, 38 percent delayed buying a home, 30 percent delayed buying a car, 13 percent delayed moving out of their parents’ home, 14 percent delayed getting married and 21 percent delayed having children.
There are several good rules of thumb for borrowing responsibly. These rules of thumb discuss how much to borrow (or how little to borrow) to ensure that the loan debt burden will be affordable.
To estimate debt at graduation, multiply first-year debt by the length of the educational program. This figure should be within about 15 percent of the actual total. For example, if a student borrows $7,500 during the freshman year in college, the debt at graduation will be around four times as much, $30,000 plus or minus $4,500, when the student graduates with a Bachelor’s degree in four years.
To estimate income after graduation, use the median income figure for the occupation in the statistics published by the Bureau of Labor Statistics. The U.S. Census Bureau has also publishes statistics on income by undergraduate major. This data has been analyzed by the Center on Education and the Workforce (CEW) at Georgetown University. In particular, the CEW report The Economic Value of College Majors provides charts mapping from undergraduate majors to income after graduation and the report Hard Times (2013 update) adds data on unemployment rates by undergraduate major. The National Association of Colleges and Employers (NACE) publishes annual surveys on starting salaries for college graduates.
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