For most families, a student loan must be part of the college-funding conversation. Through careful planning to include smart savings, tax considerations, college choice, cash flow, scholarships, and other mechanisms, families can minimize the amount of debt their students take on. 

This process often leaves families wondering how they can make smart choices about loan debt levels in the overall college planning picture. And typically leaves students asking ”how much can or should I borrow in student loans? We wish the answer was black and white. The reality is, most students will have some debt when they graduate.

How much debt really is too much?

Believe it or not “more than 2.5 million borrowers have student loan debt greater than $100,000.” How is a debt level this high ever a good idea?! Well, it could be, as long as it follows our rule of thumb to estimate how much student loan debt to take on..When we talk about smart student loan debt levels, we look to the future and see what that student’s first job will look like. The smartest debt level depends on a student’s future salary.

Why is a student’s future starting salary part of the college planning conversation?

We recommend families use the estimated annual starting salary for the future graduate as the maximum amount of student loan debt–for all four years. Let’s look at an example. If a student wants to be an accountant, we can look up their average starting salary online at You can include the preferred city as well since salaries can vary greatly by location.

In Columbus, OH, the average salary for “Accountant I” is $52,910. We use that figure as an estimated maximum student loan amount total for the whole four years of college or $13,228 per year.

We encourage our clients to follow a standard 10-year student loan repayment plan. If they are paying off $52,910 worth of student loan debt, that would be an estimated $561 per month using 10 years at 5% interest. Budget calculators like our My College Budget help families when calculating monthly payments, interest amounts, or repayment figures to know how much might be too much for their student to take out.

The Cap on Federal Student Loans

To help families not take out too many student loans, federal student loan amounts are capped at a certain amount each year–$5,500 freshman year, $6,500 sophomore year, and $7,500 junior and senior year for a total of $27,000.

So, if you are borrowing more than $27,000, then private loans will be part of the conversation. The interest rates for private loans can cover a wide range based on credit score, etc. Nerdwallet listed fixed APR ranges of approximately 5% to 13% recently.

As a result, the private loan repayment amount will be different from the $561 total per month example above, so keep that in mind as you and your student sit down to calculate a repayment plan..

Take a deeper dive: Comparing All Student Loan Programs: Private Student Loans vs. Federal Loans

The Importance of Budgeting for Student Loans (and Beyond)

An important exercise is teaching students about monthly budgeting BEFORE they agree to a student loan!

Is a student comfortable with a $561 chunk allocated to a loan payment for the 10 years after college? When students see what the other demands on their monthly budget could be, that consideration can have a huge impact on the choice of where to go to college. You can walk your college-bound student through what expenses they can anticipate after college:

  • Rent or a mortgage
  • Utilities
  • Transportation costs
  • Internet
  • Phone bill
  • Groceries and eating out

And those don’t even include “fun” spending like going to the movies or travel costs.

This really puts the average monthly student loan payment into perspective for future students. $561/month is a large percentage of monthly cash flow for a new grad. 

Not sure your student is ready to take on that kind of repayment? Try reviewing How to Make a College Education Affordable to help.

Beware Repayment Plans

If a student takes out more in loans than they can afford, the only option under federal loans is a repayment plan which can stretch out the payments over an extended period–25 years or more.

As a result, students will pay three times as much interest, not to mention be in debt until they are almost 50 years old.

The key is to look at how much total student loan debt for all four years is required at a chosen college and understand what those payments will look like every month after graduation. The college dream can become a college nightmare if student loan debt is too great a burden. 

Remember our handy guideline:

Maximum student loan debt for all 4 years = t Estimated annual starting salary. 

This will keep the student’s monthly payment at a comfortable level. So now when your student asks you “how much can I borrow?” Say student loans aren’t something to take lightly, there are many factors with long-lasting effects, and you need to sit down and budget together. 

Need Help Getting Started?

This whole process can be so overwhelming – we know that! We’ve been doing this for 20+ years, and still feel like we learn something new every day. Don’t feel embarrassed if you need help estimating the actual costs of colleges on your “to apply” list. 

Help make your life easier and sign up for a free MyCAP account today! With MyCAP you’ll be able to estimate the cost of colleges across the country, research scholarships, access educational content, and with our paid accounts you can even access one on one coaching sessions with our team of college funding experts. Don’t miss an opportunity to save on your child’s education – sign up today by clicking here.