How much student debt is too much?

That's a question I often hear from parents as they figure out how they and their children will pay for college -- and its a great question to be asking. Many parents endanger their own retirement security and impose great financial hardship on their kids by blindly taking as many loans as they can to pay for college. Somewhere along the line, parents and their children really need to ask -- "how much is reasonable?" And it may well be that less costly schools must be selected because borrowing a large amount to pay for a more expensive school really doesn't do anyone a favor.

Finaid.org reports that the average student loan debt for graduating college seniors was $23,000 in 2008. (And student lender Sallie Mae reported that the average graduating senior with at least one credit card was carrying over $4,000 in credit card debt....but I guess that's a topic for a future blog post....). Lots of students may not even earn $23,000 in their first year working, so the debt load will be substantial.

I generally advise that students take out no more than the maximum amount permitted under the Stafford loan program, which is $27,000 ($5,500 for the first year, $6,500 for the second year and $7,500 each for the third and fourth year). If the amount that the parents can afford to pay plus these loan amounts total less than the cost of college, the student and parents need to move on to a less expensive college. Other advisors in this area recommend that the amount of student loans not exceed the student's expected income in their first year working.