How Much College Debt Is Too Much?

Many consumers have been advised to steer clear of excessive credit card debt loads, fancy homes they can't afford or racy import cars that don't fit their budget. Compared with mindless consumer spending, taking on college debt in the form of student loans seems innocuous. With accrued interest and repayment terms that could span years, however, college debt can prevent graduates from moving forward to tackle other financial goals. Weighing the pros and cons of college debt can help you determine how much college debt is too much.

Debt Loads

The average college debt hovers around $21,000, but plenty of students pay more. It's not uncommon for students to carry $30,000 or $40,000 in student loans, especially after pursuing graduate degrees or professional degrees to increase marketability. More students are maxing out government loan limits and relying on private loans to augment education financing; numbers have risen from 5 percent taking out private loans in 1998 to 20 percent in 2008, according to the MSN Money website. Some loans may carry variable interest rates; you'll be safe assuming an average of 8 percent. Rates were 6 percent for the 2008-2009 school year, although projected to drop to 3.4 percent in 2011. Parent loans for college students typically carry interest rates of 8 percent.

Retirement

Excessive college debt can hinder future financial goals for graduates. According to MSN Money, a 22-year-old's $3,000 retirement fund contribution could grow to $95,000 by the time she reaches the threshold for receiving Social Security benefits with an 8 percent average annual return rate. Deferring retirement savings for 10 years in order to tackle student loans would result in less than half contributed at $44,000.

Bankruptcy

Although bankruptcy is an unattractive option for college graduates to start fresh after taking on too much debt from credit cards, auto loans or home mortgages, student loans aren't dismissed as easily in bankruptcy negotiations. That means that however much college debt you accumulate, you're probably going to have to pay it back. According to Bay Area Real Estate Trends in an argument that college debt prevents graduates from saving for their first home down payment, 60 percent of student loans are in forbearance or default. This means that -- with or without lender approval -- although interest continues to accrue, students are not making payments on their loans to drive the balance down.

Repayment

When determining how much college debt is too much, students shouldn't pay more than 10 percent of expected monthly gross income after graduation. Parents intending to take out loans to help children cover college costs should aim for all debts -- including home loans, credit card payments and other costs -- to remain under 35 percent of total gross income, according to MSN Money. It's possible to calculate anticipated monthly income based on your career choice, although there's no guarantee that you'll land a job in a desired field after graduation. A college student intending to become a teacher might earn $35,100 in his first year. To keep payments at 10 percent or below, that student could only afford to take out $25,500 in college loans. Any more than that would be too much.