What is an "unreasonable" amount of debt for a college student to undertake?

If he’s on the hook for the debt himself, preferably $0. College education brings tenuous benefits, but if you aren’t sure you can pay it back it might be best to wait until you can pay for it upfront. There is no escaping this debt through bankruptcy.

@bolwerk 0 is kind of arbitrary isn’t it? Might as well say the student should plan to come out $20,000 ahead.

The idea of a young adult taking on debt for college completely freaks me out. If the parents cannot afford college for their children, I kind of don’t understand why the parents still are not paying the loans if there are any? It is so odd for me that some parents feel no responsibility to pay for their child’s education. I understand sometimes people are simply too poor. But, sometimes they are middle class parents who never saved for the education of their children, or don’t feel it is their responsibility.

It’s almost impossible to choose a number, because some of it might depend on the salary the student is expected to earn once graduated. And, the whole thing makes me so uncomfortable I keep writing numbers and then delete it. I have no idea really. Maybe $20k after 4 years? I would guess many people graduate with much higher debts.

I’d consider anything over $20k too much for a recent grad to consider paying down depending on his/her profession. If they were studying to be a doctor then perhaps $50k to $70 is workable.

@6rant6: No, it’s not arbitrary. If you know you what you get, and the risk of being unable to return the loan is very low, some debt is acceptable. $0 is assuming one doesn’t know this, and the risk of being unable to pay the debt back is high.

If certain you can pay it back, it’s fine to take it out – maybe even beneficial. Heck, some people know exactly what they want to do and maybe enter a field where the returns are likely to be high, but even approaching risk-free is very optimistic even in those cases.

I went to a high school graduation last week, and the valedictorian is planning on becoming a doctor. He (an his parents) anticipate owing $250,000 when he gets out of med school.

@bolwerk It’s still completely arbitrary. You are choosing it because you start there. If the student worked instead of going to school you might expect them to put way some money. So the act of going to college reduces that. Ergo, $0 is where you start, but looking at it from where you could be four year’s hence, completely arbitrary.

I get it. You don’t like debt.

@6rant6 That is outrageous. Are his parents poor? Can’t help with the bills at all? Let alone the total is outrageous even if the parents are millionaires. This comfort with debt in America among many of our citizens is ridiculous. Maybe if we staopped borrowing money to pay for school, school costs would come down? I remember I asked a question a ling time ago about rising college prices and someone pointed this out to me. Not much different than home loans, once everyone could get one housing artificially increased in value/price. It makes sense to me. Tuition has risen much much faster than inflation in the last 10 years.

Well, here is a non-arbitrary way to think about it:

1. Figure out how much money you are likely to make without a college degree.
2. Figure out how much money you are likely to make with a college degree.

If loans+interest < (Line 2 – Line 1), it sounds like a good investment to me.

@JLeslie, my father could have helped pay for college and chose not to for no other reason than he is a piece of shit. I will be debt for a very long time.

@nikipedia Some parents really do not see it as their responsibility. Our dad maybe had some other fucked up reason also, I am really sorry to hear that. It’s obvious you are very smart, academically inclined, and I have no doubt your education will serve to better science and society.

I swear one of the top 10 reasons I married my husband was because his parents paid for my husband’s education, and my husband assumed that’s what parents do. I had friends who really struggled to study, work, pay bills all at once while getting their education, because their parents didn’t see it as their responsibility. I have no problem with a parent maybe asking their kid to earn some cash for spending money or even maybe half the costs, it depends on the situation, but overall I really cared the person I might make a baby with would feel an obligation to their education.

@nikipedia I think your approach is good, but there are so many unknowns and intangibles that you end up with a pretty wide range of what could happen. That’s why I was asking for people’s gut reaction, or possibly, experience.

Just so it doesn’t become the issue, the student’s parents are poorly placed to help out financially and one of them has a morbid fear of debt. The student has the option of making all the decisions, and taking on the debt, but would prefer to maintain a healthy relationship.

I agree, there are a lot of unknowns, but I think you can estimate a range and get a good idea.

That said, if you just want me to hazard a guess, I would say that the most important factor is what you decide to study. If you are going to get a degree in any of the humanities or fine arts, then let’s call it $10,000 debt maximum. $10,000 seems like a reasonable amount of money to pay off later for having a fun time for 4 years.

If you are going to get a real degree in something like engineering, computer science, nursing, or similar, that actually increases your chances of getting a job, I will increase my threshold to $80,000. Obviously that’s not desirable, but it would have to go above that level for me to seriously reconsider getting the degree.

lol…. As a recent college grad I laugh at most of this.

I went to the Ohio State University. Relatively prestigious, middle of the road cost wise. I had no scholarships and very little help from my parents. Tuition ended up only costing around 10k per year, but when you throw in cost of living, you can basically double that. After 5 years of school (I changed majors once), I graduated in the ball park of 120,000 dollars in debt (because I have no “credit” I had to take out one loan that began accruing interest immediately, it accounts for most of the extra 20k). I have at least 4 friends I can name who were at the 100,000 or more mark. Without delving too much into the details: one of them is an IT guy, one works as a mortgage/loan handler for a national bank, one is essentially a stay-at-home father but is working on his masters, and the 4th is an engineer.

I was fortunate enough to desire joining a lucrative field (science) and found myself earning enough money to pay my bills and still have a relatively good lifestyle (though I have to work two jobs and haven’t worked less than 60 hours a week in almost 3 years). My student loans were around $750/month for the last two years. My largest loan is on a graduated payment plan, which starts off with interest only payments (meaning it didn’t go down for the last two years at all).. I chose this option because I couldn’t afford the full payments when I initially graduated…. As of last month that one cranked up and I now pay around $950/month in student loans (more than the payment on my new 2011 car and apartment and utilities combined).

I have friends who are now doctors, or are close to earning the doctorates, in a variety of fields (medicine, engineering, etc, etc). One in particular, a girl I know from college…. She had to forgo being accepted to Columbia for medical school because she couldn’t raise anymore scholarships and already had over 100k in debt from her undergraduate degree. She still went to a pretty solid medical school, and is no actively researching the cure for some fatal disease (I believe a form of cancer)... and last I talked to her she’s approaching the 200k debt range.

@6rant6: Do you even know what “arbitrary” means? I don’t like debt that doesn’t make sense. If you can predict the effect it will have on you and know you can handle it, or you’re too rich to care, by all means take out the loan. Just remember that you better be able to pay it back, or it will hang like an anvil around your neck for a long time – no one acknowledges this, but it means the “reasonable” level of debt for a university loan is significantly lower than the reasonable level for a mortgage or car loan, even though the cost of a college education now approaches or exceeds the cost of a middle-of-the-road housing unit.

Your future-doctor friend anticipates owing $250k; well, that’s probably eight years of state school plus living expenses. This may make sense because doctors can expect to become millionaires over the course of their lives. Even his proposition is dangerous, given the above, because if he changes his mind or flunks out, he doesn’t get the benefits of the MD and still inescapably has to pay perhaps most of the costs.

If you want a more precise answer than “preferably $0,” look at the net present value of the endeavor: what does he put into it and how much can he boost his income over not going to the university at all? Is there a positive return? Then, how do you cope with the risk of it not getting what what you expect? I think college is well and good, but if you can’t answer that, take out very little debt or pay as you go.

“but if you can’t answer that” I get it, @bolwerk , you don’t want any risk, any unknowns and therefore you don’t like debt.

But seriously, the interest on, say, $10,000 would be two Starbucks a week. Obviously, people should try to live within their means, but there are going to be adjustments – either to spend more or less – all the time. That’s why your $0 amount is arbitrary. The student will not be living the life she is now in four years. The student is going to make a host of adjustments between now and then. Maintaining exactly the same lifestyle is not possible or desirable.

To put it more simply, the student will have a number of line items in her checkbook. Options might be to spend $50 more on student loan repayments and $50 less on apartment, or forgo take out for sandwiches, or work a second job for two months of the year. Lots and lots of choices. She can’t will away the cost of food, or housing, or transportation. __Gaining control on one line item does not amount to gaining control of your financial life.__ On the other hand, __if one line item is out of control, it can make one’s entire financial life out of control. It is the level at which people sense this might happen that I am trying to uncover.__

Incurring no debt is not a clearly better option unless like the one parent (and possibly you?) the student has a morbid fear of debt.

@6rant6: no, you’re completely misreading what I’m saying. I’m saying know your risk. If you don’t know, taking on any non-trivial debt obligation is a really bad idea. That’s the major problem with school nowadays. Hell, I think it’s been a problem for as long as I can personally remember, but it’s only really catching up now.

And, my back of the envelope calculation: a $10k loan at 2% compounded monthly for 30 years is about $36.96/month. You end up paying $4,518 in interest by the time you’re done.

But then, Starbucks is rather expensive….

College debt is some of the cheapest debt there is. I think it can be cheaper than mortgage debt, depending on whether you are able to get certain subsidies or not. If you don’t get those subsidies, it is more expensive than mortgage debt, but it is still pretty cheap.

Generally, you want as much cheap debt as you can get. Especially if you can take that money and invest it for a higher rate of return than you are paying on it. So if you pay 7% on college debt, and you can make 8 or 9% in the stock market, that’s a deal you’d want.

Most people use college debt to fund college, which means you want to be able to improve your earning potential at a higher level per year than you have to pay interest. So if you’re paying 7%, you want your education to improve your earning by 8% per year or more compared to what you’d be earning if you didn’t go to college. As long as this is the case, then you would want to borrow up until the limit where you can no longer afford to give yourself a raise as well as paying off your debt.

So you want to compare the salary you would get with no college to the salary you would get with college. Then you take your earnings, and you divide it up between “paying yourself” (money for living expenses) and paying your debt. You want to compare the non-college base salary money for yourself with no debt to the college (higher) base salary money for yourself with higher increases. You estimate the monthly payments on the amount of debt, and you figure out what is the maximum amount of debt you can handle given your assumptions about your future earnings.

There must be debt calculators out there that help do this. Ah. here is one. It says if you plan to make $50K per year, you can borrow 28k. I’m not sure if that counts an increasing salary or not. This calculator assumes your debt should not be more than 8% of future earnings, and it doesn’t look like it includes increases in earning. So it is very conservative.

My sense is that you could borrow more than that and comfortably pay it off. I don’t think you should be afraid of the economy. This recession will end in a few years at most, and people will be working again and making money again. You’d be surprised how quickly you can pay off debt if you are working.

Now this assumes you don’t spend too much. Don’t rack up credit card debt. Be very conservative on spending. My wife and I were able to pay off our student loans in half the time we had—which was probably not too bright, since it is cheap debt, but we don’t like debt. We also paid off our mortgage in 20 years instead of 30. So we are debt free now. We pay off our credit card debt in full each month.

If we wanted to, we could borrow lots of money to invest, but that’s not how we roll, so we’re leaving money on the table, I guess in favor of security and lower risk investing. We do invest in the stock market, but we aren’t leveraged, so we can afford to cover our losses without losing our shirts. We won’t lose our house. We’ll just lose years of retirement, which isn’t the worst thing.

I take a look at graphs like this one and see things like free high-quality courses online and the advice/warnings of people like Clayton Christensen and really wonder if I would do the 4-year degree if I were entering college right now. I think there’s about to be a big shakeup.

To address the question, right now suicide linked to student debt is a real problem, and the economy isn’t exactly stellar, so I would play it conservative. So you plan to make $100,000 when you graduate? What if you can’t find a job right away? What if you can’t find a job at all? I’d say don’t take on more debt than you could make monthly payments for at your current income.

To me, if it will take more than 5yrs of regular monthly payments that are comfortable on whatever money they’re making after degreeing, that’s too much. I know so many adults who are depressed and beaten down because they feel they owe more money on student loans then they’ll ever be able to pay back but they keep going to school to avoid starting to pay what they can’t afford, making even more debt.

Just to review, the question was not whether debt can become unreasonable, debilitating, and depressing. Doy.

The question was about what level of debt is “unreasonable.” Really, I value your opinion on the question I asked. I’m not so keen on you telling me obvious things like, “A million dollars is a lot of money. I wouldn’t want to owe that.” Or, “If their parents are rich, they should help.” I was hoping to pass on some answers here to my young friend, but really folks, “It’s hard to know” and “don’t do anything stupid” I believe have already been covered.

I would love to read why you think it, but at the core, I’d like to get numbers that make you think it’s too much. Hedge, sure. Give me a range, sure. But it would be so much more helpful if people gave me numbers that seem “unreasonable” to them.

@bolwerk, Risk involves uncertainty. It is an assessment of the probability of loss. It is not possible to know what the job market, housing market, or financial markets will be in four years. Ergo it is impossible for us quantify the exact results of decisions made today. You don’t like that. I understand. That’s what risk is, though. Debt on the other hand is when you know what you owe.

This depends on a few different things. $30k might be unreasonable if you are majoring in something with which you can’t get a job when you graduate! But 30K is NOTHING if you are an engineering major who’s going to come out of college earning $60 – $70 k with living expenses paid for, like my buddy did.

There is alot to consider. The best way to make sure ANY AMOUNT is worth it, is for the person to have definitive goals, and doesn’t fuck around (i.e. join a fraternity, get trashed all the time, and fail freshman year, only to start from the beginning sophomore year . . . like I did). But hey, I graduated with $30k in debt, I came out making $40,000 a year and I think every penny of it was worth it, not just for the education, but for the 6 years I spent having an INCREDIBLE experience.

I’d put it this way. I’d be ok if I had to work 3 or 4 years of my life basically putting my income towards paying off the debt. Any more than that, I would think of as unreasonable.

No loans. Work and go to school.

@6rant6: uh, I know what risk and debt are. And if you can’t quantify a substantial financial risk with “assessment of the probability of loss,” you shouldn’t take it. Since you can’t answer what that probability is, you aren’t getting a straight answer about what level of debt is “unreasonable” – not better than “preferably $0” (which is based on the assumption that the risk, reward, and ability to repay are each relatively unknown).

When you list all these things – unpredictable job market, housing market, financial markets – you’re stating exactly why a rational person should not take out a loan to pay and take on a risk that, while perhaps or perhaps not manageable, is not predictable. About the only thing kind of predictable here is what you owe, and generally that will be a lot for a college degree.

Let’s be clear about what I don’t like here: when you take out a loan for a car or house, the bank can know exactly what kind of risk it is taking on, and that risk is built into the interest rate. When you default, whatever you bought can be re-possessed and you can come out owing little or nothing. Even if you take out a personal loan, you can escape through bankruptcy. It’s a sucky, embarrassing, humiliating process, but at least it has an end to it. Not so with college debt. The government incentivizes taking the debt out with artificially low interest rates, and then doesn’t give you a means to escape that debt through bankruptcy.

It’s no exaggeration that a “reasonable” amount of debt here is a rather paltry sum without a lot more information than you’re divulging.

@MollyMcGuire So you need job that pays $20,000+ a year… and you need to take full time classes while likely working full time (as with only a HS diploma you’re not likely to break 20k not working full time).

You go ahead and try and take a chemistry students coursework and maintain a full time job for one semester…. let me know how that goes for you.

@tedd, $20,000 if you have no living expenses. Really, you need a job that pays an extra $20,000 a year that you don’t happen to use, that also doesn’t mind you going to class 18 hours a week.

Sure, no problem.

Following up….
All concerned decided $3,000 a year in debt accrued was acceptable.

@nikipedia Exactly. It’s a near impossibility.

You could potentially work almost full time and do part time classes. I knew a few people who did that. But from the outset their college career was going to take 7–8 years.

@tedd I worked full time, had two kids by myself, and graduated both college and grad school by going to school in the evenings. I’m not special. As long as you talk about why you can’t, you won’t. It’s really that simple.

You might have to skip a semester when the funds just aren’t there. All of it is very worthwhile when you graduate debt free.

That is how I did it too, @MollyMcGuire. No shame in that.

@MollyMcGuire @bkcunningham Might I ask when the both of you went to school, and what your areas of study were?

I went to school in the 1980s and then again in the 1990s. I’m actually getting ready to head back to school once again. Initially, I was going to vet school and ended up majoring in English, of all things. In the 1990s, I took some classes in criminal justice and business law just because it was something I was interested in learning more about.

@bkcunningham That explains it right there.

School is far more expensive now than it was in the 80’s or 90’s. In fact it’s far more expensive today than it was in 2000. Tuition costs (not counting your regular bills) goes around twice the rate of inflation, or roughly 6–7% a year. For prospective, if you paid $100 in tuition in 1980, at 6.5% interest rate for the last 32 years, that same $100 would now be $308. My grandfather paid less than $25,000 for his entire education, undergrad and dentistry…. today that would cover little more than a year of full time college.

And then you have to account for the major. No offense to you (or anyone else) but an English major is not nearly as hard as a chemistry major. Not that there’s no hard work involved in an English major, but a lot of it is subjective.. and if I work 15 hours writing a really good paper, I’ll probably at least get a B… I could study 15 hours for a chem test and still completely fail it (especially if we’re talking Biochem or one of the other upper level classes).

That’s why I have to question people who like to spout off that they paid for their own college while working full time and taking classes and had kids…. Sure you did, but that was 30 years ago… The reality of the situation has changed completely.

You go to school and work full-time, @tedd?

@bkcunningham, the school I attended was also a little over $20,000 per year (in state tuition). When I began college at age 17, I think the last job I had held paid me $13/hour. At that rate, after taxes, I would have had approximately $16 a month to live on.

It is wonderful that you managed to finance your education without loans. That simply is not feasible for the vast majority of students today. Most entry-level positions require bachelor’s degrees, and as @tedd has pointed out, tuition rates have skyrockted. For instance, see this chart: University of California tuition. After adjusting for inflation, tuition at the UCs now costs more than 5x what it did in 1990. Would you have been able to pay 5x the tuition you paid without any assistance?

No, @nikipedia, it would have taken me twice as long to finish my degree with today’s tuition prices. It is insanity that the costs have risen to the point they are today. Paying $13/hour for someone just out of high school doesn’t happen everywhere either though. Neither do the prices to attend UC. But, I get your point and appreciate your response. It really frustrates me to know that people finish college and just take it for granted that they are going to have to work – if they can find a job in the first place – and struggle just to pay the debts they incurred for their education. It makes me shake my head because it isn’t right and it doesn’t make sense how we got here.

@bkcunningham For the fall of my second year of college I attempted to take on a part-time (around 30 hours a week) job. The job included free money towards college (like 2500 a year, so not all but something)... and the money would’ve allowed me to offset my loans and bills.

After 3 months my grades were devastated. I had hardly any time to do my studying, especially when tests rolled around. I was constantly dead-tired. My social life had completely disappeared (even my room mates hardly ever saw me). And to top it all off, I still needed student loans to pay for school, I just needed less of them.

In today’s world, with tuition being what it is… it is practically impossible to maintain a full time position and take full time classes in most any major (let alone a complicated one such as Chemsitry or math).

@bkcunningham Why isn’t it right that people have to work so hard and sacrifice so much for a college education? Do you think people are foolish for making that sacrifice? Do you think it is a kind of gamble and the odds no longer are in favor of it? On what basis do you say it isn’t right for people to choose to take on the debt necessary to get an education?

@tedd I’m an attorney and I went to a private university costing more than twice what OSU cost you.

@wundayatta, I don’t know how to explain how I feel to be honest. I don’t think that anyone who makes a decision to go into debt for an education is foolish. No. I’d not say that. I’m all for education. I don’t think you can ever have enough education. I’m all about freedom to choose. I’m upset by how it seems that everyone sort of fell into this mindset that you have to have a college education to be successful – regardless of the cost and regardless of who pays. Does my explanation make sense to you?

What caused a college education to become so expensive in the past couple of decades? Where do the actual costs go?

@bkcunningham, from what I understand most of the costs have gone to hiring more and more administrators. Very little of the extra funds are going to student aid, teaching, or improving classrooms.

@MollyMcGuire, ok, so you paid $240,000 for your schooling, which you said included undergrad and law school. That takes 7 years, right? So you were paying approximately $34,000 per year for your schooling, or about $2,900 per month?

What job did you have without a college degree that meant you had a spare $2,900 left over after expenses each month?

Let me throw this out for discussion, @nikipedia. Like you previously pointed out, most entry level jobs do require a bachelor’s degree. Although you have a degree, you must still be trained. Unless, of course, you interned and were trained during your internship. I honestly can’t think of very many jobs where the degree is really worth – what is the word I’m looking for here – experience or reality. Not all jobs obviously. Say, for example, a nurse or a doctor. I can absolutely understand where the medical education before the hands-on experience comes in handy.

How did society survive before everything started depending on four years of college?

@bkcunningham, I couldn’t agree more. It seems that a bachelor’s degree is often just a weeding or sorting mechanism and has nothing to do with actual job skills.

One way to get around this is to get a job that is very skill-dependent. I know a number of people (including high school dropouts) who never bothered with college because they became so skilled at programming that school would have been a total waste of their time and money. Unfortunately there are not a lot of jobs like this.

You raise an interesting question, one that I think deserves its own thread.

This recent discussion is getting at what I think the fraud of the education measurement system is. As @nikipedia points out, hiring managers use college degrees as a filtering mechanism. It doesn’t matter whether it’s a good or bad filter. What matters is they need an easy way to start weeding through job applicants. Instead of reading each resume, all they have to do is look at the education section, and toss everyone who didn’t go to college and graduate.

College surely has something to do with job skills and capabilities, but it can’t be all that accurate, and if you toss people who don’t have a degree, surely you may lose some very good candidates for a job. But it makes the hiring manager’s job a lot easier. It keeps down the number of resumes they have to read, and no one questions the criterion.

In any case, for many jobs, you do have to have a BA. So kids feel they have to get the BA if they want those jobs. Those jobs pay a certain amount, and so people feel it is worth borrowing to get the BA if they can get the job that commands that salary.

Of course, it isn’t going to work for everyone. Not everyone will get the job even if they do have a BA. They won’t all get the salary. And even if they do get the job and the salary, they might not manage their money well enough to pay back the loans.

There are many factors involved. There are no guarantees. Some people will be able to pay off the loans, and others won’t. So it goes.

From the employers perspective, the use of a college degree as a filter makes sense to me. At the least, graduate are people who have followed through on a commitment that required hard work. If you actually look at the college they went to, you may get an indication if they actually learned something.

For the student, I think the value of college is not mainly in the wages that accrue as a result of it. A college education – especially where you attend, and engage in extracurricular activities – broadens one’s experience of life. That allows us to understand our world better, understand when people around us are making sense and when they aren’t, contribute to progress (social or technical), and be more help when our children face difficulties.

If you just go to get the degree, I think you can miss out on a lot of that, and I would expect it would seem that a degree is not so valuable. For me, it’s the experience, not the certificate, that allows us to be more.

@nikipedia I usually went to school for a semester or two, then had to skip one. I started to work right out of high school with a public utility and moved up that ladder pretty quickly. I actually always made a very attractive salary, even before finishing college. School is not just about making more money. College, especially, is life enriching. Law school was self inflicted torture but I am so happy I stuck it out.

@MollyMcGuire So why did you go to law school? I thought of it many times, but always said no. Eventually married a lawyer and determined that I probably would not have liked being a lawyer that much. I would have enjoyed law school, but I would not have liked lawyering.

@wundayatta I worked in the legal/regulatory organization of AT&T. A law degree was something I knew would only help me there in the company as well as after my planned early retirement at 50. My plan was to open a law practice at that time. Life didn’t cooperate and my family needed me after I retired. I did and still do some consulting work and case/witness prep some. I have now moved and am not licensed in this state and have no intention of obtaining a license here. There is a lot I can do but I have to be careful not to “practice law” while I’m in this state.

I’ve always thought the real drawback to becoming a lawyer would have been to be around lawyers all the time. @wundayatta, I would not have chosen your situatoin either!