I recommend students to only take 50% of their expected first year’s salary in loans because research suggests that taking any more potentially leaves you with lifelong debt. Taking debt proportionally to your future income gives you a better idea of what your life will look like financially after college, and it gives you a better chance of pursuing big life decisions like buying a house, getting married, or starting a business. In previous years, I’ve seen a common recommendation of taking 100% of your future first year’s salary. But as shown in my “Why 50%?” tab, that number has destroyed the financial stability of many millennials. That long lasting struggle is a result of the inflation of the cost of college and the lack of focus on the disproportionate changes in that cost in more recent years. 

The 50% recommendation is focused on setting you up for future financial success without the burden of excessive student debt. If you are planning on going to college, or are in college already, I implore you to evaluate your cost vs outcome. For example, nurses and doctors are expected to earn high salaries, right? Well they also take disproportionate, large amounts of debt. Nurses can expect to earn $52,000-$65,000 in their first year on average, though that changes from place to place. And nurses take on average $40,000-$55,000 in debt. That’s a lot of debt! That’s 81%, well above the 50% recommendation.  

I am not trying to convince you to avoid becoming a doctor or nurse. We all need them, and they are an essential part of our world (especially during a pandemic). Nurses and doctors typically go to school longer than 4 years and can usually expect to earn a higher than average salary after they are licensed and working. This means that they have more money to pay back student debt and can be an exception to the 50% rule. I simply encourage you to research the 50% recommendation for your own personal situation so the decisions you make in college are conscious ones. Perhaps, if you know you need graduate school or will attend medical school, consider a community college to save during the first two years. I am also encouraging you to take advantage of grants and scholarships sooner rather than later, as they may be the difference between a happy life and a one full of financial sacrifices.

Women and people of color are at a significant disadvantage when it comes to student debt in college. In fact, women hold ⅔ of the outstanding student debt in America. Statistically, these groups take on more debt in college and are paid less afterward. There are many reasons this could be. I hypothesize women are in this position due to the fact that they get less sports scholarships, go into lower paying jobs, and are paid less than their male coworkers. I can also assume people of color are less fortunate because systematic racism leaves them at the lower end of the financial spectrum. Also, these groups are more likely to be first generation college students which means their parents may not be able to give them the same knowledge gained through experience. 

In the end, the reasons are not as important as your outcomes. It is important to understand that as a woman and/or person of color, you are more at risk for taking on debt and being paid less after graduation, statistically speaking. So I encourage you to do the research, look through this website, use the resources I’ve linked and collected, and to be educated on such an important and impactful decision. My 50% recommendation was built to support students (especially less fortunate students) in making educated decisions in taking on student debt. Hopefully, if you watched my video on the main page, you will also have a better understanding of how much debt you should take on as an undergraduate student. 

These numbers are not meant to discourage students from going to college or taking on debt. It is meant to inform these students on what they can do to beat the system. The first step is to understand, and the next is to overcome. Now that you know, it’s time to succeed! 

Here is where I found my statistics on the inequality of student debt for women and people of color: https://www.aauw.org/resources/article/fast-facts-student-debt/  

NAACP scholarships for people of color: https://www.poisefoundation.org/naacp-scholarships 

Minority based scholarships: https://uncf.org/scholarships 

Are you struggling with beginning the scholarship process?

This podcast called Profit Boss® Radio is a helpful introduction to finding and applying for scholarships. It is very down to earth and shows some surface level things that you can improve or do in applying for scholarships. And it dives deeper into what scholarship panels are looking for and how you can use that to your advantage. For both parents and students, this is a great resource for understanding how to take the first step in earning as many scholarships as possible.

What resources or advice do you have regarding searching and applying for scholarships that could help fellow readers? Comment below:

No one decides how much debt you take except you. Recommendations from teachers, parents, counselors, colleges, and advisors are just that; recommendations. In the end, the one paying back these loans is you. In the U.S., student loans are non dischargeable which means student debt will follow you even through bankruptcy. When you take a car loan, it’s a loan on your car, when you take a home loan, it’s a loan on your home. But when you take student loans, it’s a loan on your education. It’s not something that can be taken back or sold or repossessed.

Most student loans are paid back over a 10-15 year period after graduation. Most people are 35-40 by the time they finish paying off student debt. These are the years in which most people decide to make big life decisions like getting married, buying a home, having kids, or traveling the world. Finding the right balance of student loans and the value of education (so you can have a higher income) is key. College degrees can give you higher potential to earn more money in the future, but the student loans you take to make that happen will also follow you into the future.

The strategy I recommend is taking 50% of your first year’s salary in student loans. This will leave you with 9% of your annual take home pay being given to pay off student debt for the next 10 years in my example below:

Using georgetown.edu, you can find your expected first year salary by career or major. Since your first year salary is lower than the average, you will find your expected first years salary in the 25th percentile. For a Civil Engineer, this number is about $60,000 annually. Unfortunately, this Civil Engineer only keeps about 75% after taxes and withholdings. I found this estimate by using the smartasset.com Federal Paycheck Calculator. Remember, you don’t get to keep all $60,000 you make, you have to pay Federal and State taxes along with Social Security and Medicare at almost all U.S. employers. What you take home after taxes and withholdings is called your net pay and in the example, our Civil Engineer takes home $45,000 net pay annually. Let’s say this Civil Engineer takes on 50% or $30,000 in student loans. We can use this number to calculate monthly payments, and we can find what percent of your annual salary these payments would be. Using the student loans calculator by FinAid.org at 6% interest over 10 years shows that our Civil Engineer would pay about $340 per month toward his or her student loans. This is 9% a year of the take home/net pay. 9% may not seem like a lot, but remember you still have to provide yourself a place to live, food to eat, transportation, healthcare, entertainment, etc. It adds up very quickly, and as I talked about in my Why 50% page, most Americans live paycheck to paycheck and struggle to pay their large amounts of student debt. Previous generations were told to take 100% of their first years salary in student loans and now have to pay 18% of their take home pay toward student debt. Through my Why 50% page, you can see the largely negative effects this recommendation has had. That elusive balance between loans and value of education has made it obvious that 100% of your first year’s salary is simply too much and doesn’t retain its value in your future career when you are trying to pay it off.  

If you find that you can’t stay within the 50% window, I recommend that you consider ways to increase your estimated earnings or ways to reduce the amount of debt you take! Making educated decisions now will make your debt easier to handle in the future.