A recent blog article from usnews.com titled How Much Student Loan Debt Is Too Much? includes suggestions for how much student loan debt is reasonable for a borrower’s level of income. For example, student loan debt of $25,000 is affordable for a single person with an annual income of $30,000 to $40,000 but if the debt increases to $50,000 someone earning only $40,000 to $50,000 annually is going to face budget problems. At that amount of debt, student loan payments would be about $450/month, almost equal to what would be spent on food. Student loan balances of $75,000 require an annual salary of $60,000 or more for a single person and if the student loans increase to $100,000 the blog author suggested a borrower needs to be earning over $80,000 annually. At that level of debt the monthly loan payment would exceed $1,000/month. Borrowing to finance a better education often makes sense but be careful that the student loans don’t exceed an amount that your chosen career can reasonably anticipate repaying.
In other student loan news– the commissions paid to private companies that collect student loans has been cut from 16% to 11%. More importantly, the commission is now earned regardless of the size of the student loan borrower’s monthly payment. Previously, the higher commission was earned only if the debt collection company got the borrower to make high monthly payments. This led many companies to mislead borrowers into thinking the high payments were required. Federal law allows student loan borrowers to make payments that are “reasonable and affordable” and there is no minimum payment, despite what a debt collection company might say. Unfortunately, the new policy on commissions applies only to companies collecting on behalf of the federal government, not state guarantee agencies that collect student loans (even though the law is the same on these state guarantee loans). Private student loans also are not covered by the new policy because payments on private student loans are established by the lender, not federal law.