Good Question: How Much College Debt Is Too Much?

MINNEAPOLIS (WCCO) -- More Americans have college debt now than at any time in our history, according to a new report from the Pew Research Center.

Approximately one in five households has student debt, that's more than double the percentage with student debt in 1989.

Nationally, it amounts to nearly $1 trillion of debt. The average Minnesota graduate owes $29,058 in college debt, the fourth highest debt load in the country.

"I don't ever want to say it's not worth it, just borrow reasonably," said Ginny Dodds, manager of financial aid programs at the Minnesota Office of Higher Education.

Dodds pointed out that college graduates, on average, make $20,000 more a year than high school graduates. Some studies show that a college degree can add $1 million in lifetime earnings.

But Dodds fears that we may be near a tipping point when it comes to the burden of student debt.

"I think some of the colleges are looking at that now with tuition and what people are having to borrow," she said.

The general rule for financial experts and Dodds is: Never borrow more than your first year of salary. So if you expect to be an engineer, you can probably handle more of a debt load than if you expect to be a journalist.

"I think students need to do a lot of research before they settle on their loan amounts and decide what major they're doing," Dodds said.

She recommends a website called StudentLoans.gov to plan out a good level of debt. Students with college loans can log in and run the numbers with their loans. Prospective students can plug in loan amounts, and projected salary amounts, to get a loan to income ratio. Anything higher than 15 percent debt to income is too high. So if you borrow $20,000 a year, a total of $80,000, the website estimates you'd need to make $67,000 to stay under 15 percent. Ideally, you'd make more than $100,000 to have a debt to income ratio below 7 percent.

The issue is even more acute at the graduate and medical school level, said Dodds, where students routinely rack up $200,000 - $300,000 in debt.

"You're borrowing a lot more, and not getting much aid from the schools," she said.

Some are questioning the value of law school, especially, because many law school grads are not getting the jobs necessary to make that mountain of debt worth it.

In the meantime, Dodds knows that students and parents are watching the issue of debt.

"They may reach the tipping point where people are so turned off by the sticker price that they're not going enroll," she said.