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How Much Student Debt is Too Much?

So what do you think? How much student debt is too much? $20,000? $40,000? $100,000? What if I told you that I came up with a simple formula that would tell you if your student debt was simply more than you should take on? Lucky for you, I did. 🙂

The Importance of College Today

student debtWithout a college education, a young adult would have a very difficult time finding a well-paying job today. It seems like a degree is needed for everything (which, in my opinion, is total crap)! Heck, even secretaries are advised to have a degree these days! Pretty soon, you’ll have to earn a degree to fold clothes at the GAP. Okay okay, I might be getting a little carried away again, but the importance of college is so inflated these days that even students that have no idea what they want to do in life feel that they should at least go to college and get a degree in something. And this is where kids are getting themselves into trouble.

Let’s face it, kids know absolutely nothing about life. No matter what their degree is in or how well they learn the subject, they somehow feel that they will be earning bank when they get that magical diploma. I fell into this trap too! Instead of earning $75,000 a year like I envisioned, I earned $33,000 the first year after I graduated. It was a pretty rude awakening. And, because of my minimal income, I simply couldn’t make any headway on my student loans!

The Debt Equation

I know plenty of students that have graduated with nearly $50,000 in debt. Some planned on becoming engineers, while others were on track to become elementary school teachers. Well, this amount of debt means something very different to these two groups of people. The elementary school teacher can plan to earn about $29,000 in their first year, while the engineer will likely earn $20,000 more that that! It is obviously much easier for the engineer to pay back his debts than the school teacher, and he should then feel comfortable taking on more debt.

So how can we quantify this? I’m glad you asked.

Here is what you need to know for the upcoming student debt formula:

And that’s it! To find the projected income for your first job out of college, search for it at Select “Job” on the first drop-down and then type in the job you think you will get. You will then see the range of incomes for that job. Since you are a greenhorn and this will be your first real job after college, choose the number at the bottom of the scale. For teachers, this number is $29,000. For mechanical engineers, this amount is approximately $49,000.

As for the tax rate, I typically use 30%. It seems to be fairly accurate for my state of Michigan. If you know your taxes are less or more, then use your approximate figure.

So here is the equation I go by if students are absolutely convinced they need student loans to get through college:

(Estimated Income)*(1-(Income Tax Rate)) – $25,000 = Maximum Debt Load

Registered Nurse

Let’s use an example to make sure you understand the equation. Let’s say you plan to become a nurse. A first year Registered Nurse will earn about $42,000 a year and pay income taxes of approximately 30%. Their average cost of living (if they continue to live like a broke college student) for this individual is $25,000/year.

$42,000* (1-.30) – $25,000 = Maximum Debt Load = $4,400

By earning $42,000 a year, you are actually making just $29,400 after taxes, which only leaves you with $4,400 extra dollars after the entire year is up. If you live simply, then you will be able to pay back your loans within that year.

Elementary Teacher

If you want to become a teacher, your base salary is $29,000. After taxes, you are only earning $20,300, which means that you should borrow absolutely nothing for your education because you will never be able to pay it back!

IT Manager

If you attend a prestigious school and are able to be hired in as an IT Project Manager, you might earn $52,000 a year. After factoring in taxes and your cost of living, you would have $11,400 of additional money at the end of the year, and that is the amount that I would feel comfortable with you borrowing.

Try to Avoid Student Loan Debt at all Costs

As you may have guessed, my qualifications for student loan debt are quite strict. If you can avoid taking on any additional debt, then I would certainly urge you to go that route.

Students have a way of shrugging off their debt load while they are in school, mostly because they are still ignorant about how much money they will actually earn in the real world. $25,000 in student debts doesn’t really mean that much to them. They assume that if they earn $40,000 or more, that they’ll be able to pay that debt down almost immediately. Not true. After living expenses, food, clothing, insurance, gas, and fun, they will have little to nothing left at the end of each year. And consequently, their student loans will hang around for a very long time.

If you can work hard through college and earn enough to pay for your education, you will be far ahead of your peers and will have a much better chance of success in your future. Avoid debt and use your additional revenue to invest in your future, and you will soon become wealthy beyond belief.

Do you think student loan debt is okay? How much do you think is too much?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. Thankfully in Australia, we use a different system from the student loan process. Instead, the cost of your education is a debt held with the government, which you pay off through higher levels of taxation. The more you earn, the more you pay back.

    • Sounds like I don’t want to be a wealthy person in Australia… I’m not a big fan of the government making rich people pay more just because they have money. Too much government intervention.

  2. My younger sister is a freshman college, actually I don’t want her to have a student loan that’s why me and my brother pays her tuition fee. My parents full paid our tuition fee and now that my father has passed away, it’s our responsibility to help her.

    • Sounds very noble of you Kate. Just be sure that your sister is not taking this free education for granted. If she is studying hard, getting good grades, and has internships lined up for next summer, then she will almost certainly do well for herself once she has her degree.

  3. Tuition costs have recently tripled in the UK and many students will now graduate with around £60k ($95k) of debt. Personally I think everyone should be running scared, but most people seem ot have swallowed the government line which is “we’ll take it from your wages before you see it, so you’ll never miss the money” and “the loans are written off after 30 years so you don’t need to worry about paying it all off”.

    • Yeah, $100k is a ton of money! I only had $12k of college debt and it took me a year to get rid of it!

  4. It is really important to try to Avoid Student Loan Debt at all Costs.They have a way of shrugging off their debt load while they are in school.

    • It is pretty easy to ignore your debt when you are paying absolutely nothing towards it. This is getting students into a ton of trouble. Plus, if they decide they can’t pay back the loan, bankruptcy won’t get rid of it either. They are STUCK!

  5. I think that student debt is OK when used smartly. This means getting a degree that will actually allow you to earn a living down the road and that doesn’t cost hundreds of thousands of dollars. I hear of dentists in $400,000 in student loan debt and cringe. Even with the potential high salary they can make, to me, $400K is absurd!

    • I have also heard of vet doctors taking on over $200k in student loans only to get a job that pays $75k a year. Even if they lived on just $30k a year, they would only have about $20k a year to put toward their debt (because you have to factor in tax of course), which would mean 10 solid years of payments! They wouldn’t be able to invest in their future until they were nearly 40 years old! I hope they really enjoy the job….

  6. I have taken around $16,000 student loan for completing my degree. But after completion of my degree I faced harsh reality and couldn’t able to find any decent job in a related field. After that I started my own business, luckily which worked and able to pay back my loan, but I am still regretting my decision of pursuing a degree and wasted a good amount of money on it.

    • There are SO MANY kids that are going to college these days that simply won’t benefit from it. It’s sad really. If only their parents understood that no college does not automatically mean failure.

  7. According to a government data analysis by financial aid experts at Edvisors, the class of 2014 graduated with an average student loan debt of $33,000. So, I think It is really important to avoid student loan debt.

    • That is an insane amount of debt! So after college, kids earn about $40k and are able to pay off only $15k a year if they really buckle down. In reality though, they will probably pay down only $5k a year and have debt for 8 years after they graduate. This will really set them back in life!

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