The Consumer Financial Protection Bureau (CFPB) recommends limiting monthly student debt payments to no more than 10% of your gross monthly income. Borrowers with a relatively low income may pay considerably less if they opt for an income-driven repayment (IDR) plan.
Some experts say your future student loan payments should be no more than 8% to 12% of your monthly salary at the time you begin making payments. Mathematically, this translates to borrowing no more than the equivalent of one year's salary, which is a simple guideline for students to remember.
Among student borrowers, women take out an average of $31,276, while men borrow an average of $29,270, according to a 2021 data analysis by the American Association of University Women. Black women owe a disproportionate amount of student debt.
Let's say you have $200,000 in student loans at 6% interest on a 10-year repayment term. Your monthly payments would be $2,220. If you can manage an additional $200 a month, you could save a total of $7,796 while trimming a year off your repayment plan.
Paying off such a large balance can be difficult and time consuming. For example, if you had $300,000 in federal student loans and paid them off on the standard 10-year repayment plan with a 6.22% interest rate, you'd end up with a monthly payment of $3,364 and a total repayment cost of $403,663.
Billionaire Robert F. Smith pledged to pay off student loans for every member of Morehouse College's graduating class. The Ivy League-educated business leader made his fortune investing in software firms and other tech companies.
Black adults are more than twice as likely than white adults to have student loan debt. The following graph includes federal and private student loan debt among all adults. On average, Black adults in the U.S. also hold higher student loan debt balances than borrowers of other races.
Student Loan Debt by Household Income
Households in the highest income quintile (81st percentile and higher) owe 26% of student loan debt. Households with income in the 61st to 80th percentile hold 32% of student loan debt. 20th to 40th percentile households owe 22% of all outstanding student debt.
The average debt among recent graduates who took out student loans is nearly $30,000, according to an analysis by U.S. News, so the monthly payment on a 10-year standard repayment plan would be on the higher end of that range – around $300.
There isn't a hard and fast rule of thumb for the maximum DTI to have when refinancing your student loans but typically, a DTI of 40% or lower is considered a reasonable threshold when you're applying to refinance — the lower your DTI is, the higher the chance you'll qualify for a new loan with a lower interest rate.
Under certain federal programs, it's possible to get your student loans forgiven after 20 years of qualified payments. Private student loans, however, typically don't have forgiveness options, regardless of how long you pay them.
The 10% Rule
Let's say, for example, that your monthly take-home pay is $3,500. Your student loan payment would need to be no higher than $350 to meet this guideline. If you owed $30,000 at a 6% rate, your payments would be $333 on a standard 10-year plan, which would fall within this limit.
You're not alone if you are still paying off your student loans from your college education years ago. In fact, many Americans are paying their student loans well into middle age. A 2019 study from New York Life found that the average age when people finally pay off their student loans for good is 45.
Among borrowers who attended some college but don't have a bachelor's degree, the median owed was between $10,000 and $14,999 in 2023. The typical bachelor's degree holder who borrowed owed between $20,000 and $24,999. Among borrowers with a postgraduate degree the median owed was between $40,000 and $49,999.
When the time comes to start making payments, only the student is obligated to repay these loans — not the parents. In fact, there's no co-signer. If the student defaults on a federal student loan, it will affect the student's credit and won't be reported on the parent's credit history.
By the numbers: Borrowers between 35 and 49 years old owe the most in federal student loans, according to Federal Student Aid data. Details: Women typically borrow more for college than men, according to NerdWallet, a personal finance company.
Robert Smith, the billionaire who went viral last year for paying off the debt of students at Morehouse College, admitted to an illegal scheme to conceal income and evade taxes by using offshore trusts and bank accounts for 15 years.
Whether your family is rich, poor, or somewhere in between, you can take advantage of student loans provided by the US government. These loans (known as Federal Loans, Direct Loans or Stafford Loans) offer lower rates and more flexible payback options than you can find from almost any other source.
One rule to live by is to try to limit your total amount of student loans to a small percentage of what your expected annual salary may be from the first job you get after college. For example, you could decide that your monthly loan payment should be no more than 10 percent of your gross income.
If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which can negatively impact your credit rating. If you continue to be delinquent, you risk your loan going into default.
Discretionary income in relation to student loans is the difference between your annual income and a percentage of the poverty guideline that fits your situation, depending on the repayment plan. The United States Department of Education uses your discretionary income to determine your payment amount on a student loan.