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Warning to Students with Loans: There is a Limit

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Not long ago, a New York panel of judges ruled that a man with $400,000 in student loan debt didn’t deserve to be an attorney. The accrediting board determined that his heavy student loan burden disqualified him from being a lawyer. (Of course, without the right to practice, how that man is ever going to earn enough to pay off his nearly half a million dollars in loans is beyond me!) According to CBS News.com, this would-have-been lawyer is not the first to be denied a professional license because of too much debt. The same has happened to nurses, doctors and chiropractors.

Even if a high debt ratio doesn’t interfere with your professional accreditation, it may wreck havoc on your professional aspirations. At one point in time does the weight of your student loan repayment start to determine the conditions of your employment? Can’t take that job — it doesn’t pay enough!

Here’s what I mean. If you borrow, let’s say, 1/10th of what the law student above took out — just $40,000. At 6.8% interest and on a 10-year repayment plan, you would have to pay back $460.32 a month.  According to Wikipedia, the median income for families is just over $50,000. The breakdown for men’s and women’s salaries (yes, sexism is still alive and well!) is as follows:

The real median earnings of men who worked full time, year-round climbed in a recent two-year period from $43,460 to $45,113. For women, the corresponding increase was from $33,437 to $35,102.

A median-earning male would be spending approximately 12% of his monthly income on loan repayment — considered a reasonable debt-to-income ratio. At $35,000, you would be looking at more than 15%, a figure many experts consider too high.

Even with modest annual raises, you would still have to be able to maintain an above-average salary and a below-average household budget for a decade! So, how do you know when to say when?  (Read more about the real cost of paying back your student loans here).

I’m not trying to come out against student loans. I firmly believe that there is no better investment you can make than in yourself. And I fully aware of the skyrocketing cost of college (and the shrinking paycheck). Which is why I believe that something has to give. Students can’t afford the risk of maxing out their student loans. Surely $400K is way over-the-top, but $40K isn’t that far off the average. The College Board estimated that the average student loan debt for undergraduate student was more than $22,700. The Association of American Medical Colleges estimates that doctors top out at $103,000+ in student loans.

So I’ve said my piece, but I’d love to hear what you think. How much student loan debt do you think is a “reasonable” amount? When do you say “when” to student loans?

Oh and by the way, it is possible to graduate from law school without massive student loan debt. And certainly without $400K.

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