Updated: Jul 28
Student loan debt is a significant financial burden for many Americans. According to the Federal Reserve, Americans owed $1.76 trillion in student loan debt as of the third quarter of 2022. If you are considering taking out student loans to finance your education, it's important to understand what is the rule of thumb for student loan debt. In this post, we'll explore the answer to that question and what it means for your financial future.
What is the rule of thumb for student loan debt?
The rule of thumb for student loan debt is that your total student loan debt should not exceed your expected starting salary after graduation. This means that if you expect to earn $50,000 per year after graduation, your total student loan debt should not exceed $50,000.
Why is this important?
This rule of thumb is important because it helps ensure that you can manage your student loan debt without it becoming a significant financial burden. If your student loan debt is too high relative to your expected income, you may struggle to make your monthly loan payments and may have difficulty achieving other financial goals, such as saving for retirement or purchasing a home.
What do the statistics say?
According to a report by the College Board, the average student loan debt for undergraduate students who borrowed to finance their education was $30,030 in 2022. This represents an increase of 2% from the previous year.
Furthermore, according to the same report, 56% of bachelor's degree recipients in 2021-2022 graduated with student loan debt. The percentage of students graduating with debt varies by state, with South Dakota having the highest percentage of graduates with debt (76%) and Utah having the lowest (37%).
How can you manage your student loan debt?
If you have student loan debt, there are several steps you can take to manage it:
1. Understand your options
There are several repayment options available for federal student loans, including income-driven repayment plans, which can help lower your monthly payments based on your income.
2. Make payments on time
Making your student loan payments on time is important for maintaining your credit score and avoiding default.
3. Consider refinancing
If you have private student loans or a high interest rate, you may be able to lower your interest rate and save money by refinancing your loans.
4. Create a budget
Creating a budget can help you manage your monthly expenses and ensure that you have enough money to make your student loan payments.
The rule of thumb for student loan debt is that your total student loan debt should not exceed your expected starting salary after graduation. This rule is important for managing your student loan debt and ensuring that it does not become a significant financial burden. By understanding your options, making payments on time, considering refinancing, and creating a budget, you can manage your student loan debt and achieve your financial goals.