The 90/100 Rule for Student Loan Debt

Student loans are often necessary when paying for college. A general rule of thumb suggests that your student loan debt at graduation should be at most 90% to 100% of your expected starting salary. This guideline is a benchmark for borrowers to maintain a manageable debt-to-income ratio after graduation, ensuring that education loans are less likely to jeopardize future financial stability.

According to the rule, for example, suppose you expect to earn a starting salary of $50,000 in your first job after graduation. In that case, your total student loan debt should not exceed $45,000 to $50,000.

Why it Matters

The reasoning behind this rule is simple: keeping your student loan debt aligned with or below your starting salary makes it more likely that you can meet your repayment obligations without undue stress. A standard budgeting guideline is that your total monthly debt payments (including student loans, car loans, credit card debt, etc.) shouldn't exceed 36% of your gross monthly income. So, by keeping your total student debt close to your starting salary, you're more likely to manage your payments within this 36% threshold.

Taking on too much student debt relative to your income can have ripple effects throughout your financial life. High monthly loan payments can make saving for goals like retirement or a down payment on a house more difficult. It can also force you to delay milestones like getting married or starting a family.

Excessive student debt can also limit your career choices. Someone with very high debt may feel pressured to take a high-paying job you're not passionate about to keep up with loan payments rather than pursue a lower-paying but more fulfilling career path.

Applying the Rule

To apply the 90/100 Rule, you'll need to research and plan ahead. For a quick estimate of starting salaries in hundreds of career fields, try our Maximum Student Loan Calculator. 

Next, calculate the total cost of your education. When comparing college costs, it's critical to consider "net cost" versus published tuition. Few students pay full tuition at many schools, especially at private colleges and universities. Try our College Explorer to estimate the net cost of attending any school in the United States. After subtracting college savings, scholarships, and grants, you'll get a rough idea of how much borrowing may be required for each school. 

If your total borrowing needs exceed 90-100% of your expected starting salary, look for ways to reduce costs. This could include choosing a less expensive school, living at home to save on housing costs, or working part-time to offset some of your expenses.

Exceptions to the Rule

While the 90/100 Rule is a helpful guideline, it may make sense to borrow more in some situations. For example, suppose you're pursuing a career with a clear path to rapid salary growth, like specific fields in medicine or law. In that case, you may be able to manage a higher debt load. 

In addition, some professions, like teaching and careers in the government and nonprofit sectors, offer loan forgiveness programs that can make a higher debt load more manageable - especially for those with graduate degrees and a relatively high level of debt. If you plan to take advantage of these programs, factor that into your borrowing decisions. But remember that forgiveness programs offered through the federal government, like public service loan forgiveness, only apply to federal student loans - not loans borrowed from banks, credit unions, or other lenders. 

Finally, for some, pursuing a specific career or vocation is a calling that transcends financial considerations. Careers in social work, education, or the arts may not always promise high salaries. Still, the personal and societal value they provide can be immeasurable. Individuals driven by passion and a desire to make a difference may view the benefits of their chosen path as outweighing the financial implications, warranting an exception to the rule.

The Takeaway

The 90/100 Rule for student loan debt is a guideline, not a hard and fast rule. The right amount to borrow will depend on your circumstances, career path, other financial obligations, and risk tolerance.

However, the underlying principle of the 90/100 Rule is sound - borrow with your future in mind. By planning wisely and considering future earnings when taking on debt, graduates can set themselves up for a successful and financially stable start to their working lives.