Ideally, none, but let’s be serious. In 2012 and beyond, just about everyone will have student debt…it’s only a matter of how much. Half of all graduating students now have student debt, according to the College Board.
Your total student debt should not surpass what you expect to earn your first year out of college. So, if you expect to make $40,000 your first year, your debt should not exceed that. Yet, student loan debt is inevitable, and you should not let it deter you from going to college.
You will accumulate more money throughout your career –even if you have $100,000 in student loans and a low-paying professional career – than you would without earning a college degree. A bachelor’s degree yields on average $550,000 more over a lifetime than a high school degree or lower.
Also, you want to think about when you want to be student loan debt free. Say, you want to be debt free by the time you’re thirty so you can start having kids…whoa….whoa…whoa. Kids? Let’s just say by thirty because that’s what a responsible adult would do.
The median salary for professionals in their 20s is about $40,000 a year, and the average public school grad has about $22,000 in debt. The average private school grad has about $28,000, according to the College Board.
Conservatively, you put 10% of your salary (pre-taxes) toward your debt – a total of $4,000 per year or $333.33 a month – with an average student loan interest rate of about 7%. Then, you’ll have it paid off in 7 years with $5,868 paid in interest. Check out CNN’s student loan calculator here for more options.
You can save tons of money in student loan interest by choosing a more affordable college. In many cases, an expensive degree won’t necessarily yield higher earnings than a more-affordable degree. However, a $40,000-a-year-degree at Harvard trumps your local community school’s $7,000-a-year-degree. But, the $40,000 private school’s degree is no more valuable than the $20,000 state school’s. You can even save more money by avoiding quick loans while in school.
Recently, student loan debt has soared over the $1-trillion mark for the first time in history, according to Mark Kantrowitz at FinAid. Sparking Congress to take action and make paying back student loans a little easier. Med school students in the middle of studying for the MCAT with a tutor better consider all the debt they will soon take on.
Congress wants to give all students debt forgiveness after 10 years if they consistently pay at least 10% of their earnings toward their debts. Forgiveness caps around $45,000 in debt. The Student Loan Forgiveness Act has not yet passed, but has gained significant popularity, and it would also freeze federal interest rates at 3.4%.
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My wife and I are shocked at the high cost of higher education, and how much student loan debt the average student carries. I’ve known more than a few people, including some pastors, who went to college, and maybe also grad school, and spent a lot of money on a degree but then chose a career that didn’t pay well. So they carry those student loan debts around for years and years and years.
We have five kids and we hope and pray that they will become entrepreneurs. We’re considering helping them start their own business instead of helping them pay for college. Then after working for themselves for a few years, they can go to school on their own dime, and pursue the degree they know they want (after getting some real life experience under their belt) instead of the degree they think would be cool when they were a high school senior.
Rich@MoneyWisePastor´s last [type] ..October is Pastor Appreciation Month