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Recommended loan limits

WyanokieWyanokie 25 replies8 discussionsRegistered User Posts: 33 Junior Member
I realize that this topic has probably been covered quite a few times on these boards. I tried searching but so many divergent threads come up when "loan" or "loans" are searched… Anyways, a recent post mentioned that many here recommend limiting a student's loan burden to the federal loan total of about 30K but that some advocate for a higher number based on an anticipated first year salary. Can anyone point me to a past thread that focused on that debate? If not, can we discuss it here? My son is a rising senior who won't be eligible for FA until year 3 when his sister will also be in college and we may get some at that point.

He has the stats to potentially get into a top school and is oriented towards STEM studies and career options - probably engineering, possibly finance. Yes, he's only 17 but he has, for better or worse, been pretty consistently focused on working towards a high paying career path (all coming from him, believe me…)

So, if he does get into a school like Penn or MIT or Michigan CoE would it be reasonable to expect him to graduate with more debt (some of it co-signed by us - or maybe even just owed to us…) than just the federal loans in his name?

Interested in reading about people's opinions and experiences on this. Thanks
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Replies to: Recommended loan limits

  • VladenschlutteVladenschlutte 4292 replies37 discussionsRegistered User Posts: 4,329 Senior Member
    Obviously less is better, though someone who's money focused will easily be able to pay back a 30K loan from 2 summer internships and whatever starting bonus they get. Could be that they could pay back much more than that. Amazon starting bonuses are 40K for instance (though you have to pay tax on that).

    It's hard to point to a single amount and say "that's the maximum" or anything like that. It's best to just keep it down as low as possible without significantly compromising his opportunities.
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  • calmomcalmom 20393 replies166 discussionsRegistered User Posts: 20,559 Senior Member
    The percentage of students who get highly paid summer internships or large signing bonuses on graduation is probably far less than the percentage of Harvard applicants who get accepted.

    Don't base borrowing on pie-in-the-sky ideas of the ideal job/paycheck that you hope your kid will get in the best of all worlds. If that is your thought process, then forget loans and invest in lottery tickets instead.

    Base the loans on the salary level that is pretty much guaranteed (low end) assuming your kid can get a typical, post-college entry level position. Keep in mind that those top-level job offers go to top-level students -- and there are plenty of kids who drop out of an engineering track because they can't get up, and others who muddle through with a C average.

    So probably around $30-$40K at most. I personally think that's high -- my d. kept her loan burden below $20K. Both of my kids have had to borrow money for grad school.

    If your son has the stats to get into a "top" school, then he has the stats to get merit money from a good, but not "top", school.

    If you don't qualify for need based aid with only one in college, then you should have the financial resources to help your son avoid all but minimal loans, at least if he opts for an in-state public.
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  • VladenschlutteVladenschlutte 4292 replies37 discussionsRegistered User Posts: 4,329 Senior Member
    The percentage of students who get highly paid summer internships or large signing bonuses on graduation is probably far less than the percentage of Harvard applicants who get accepted.

    Probably. If you restricted your domain to only those who are looking to make as much as possible, you'll see something very different. Many have different motivations than TC's son.

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  • MichiganGeorgiaMichiganGeorgia 4387 replies85 discussionsRegistered User Posts: 4,472 Senior Member
    "some of it co-signed by us - or maybe even just owed to us"


    So are you saying you could loan him the money?
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  • furrydogfurrydog 224 replies2 discussionsRegistered User Posts: 226 Junior Member
    edited June 2014
    >>>The percentage of students who get highly paid summer internships or large signing bonuses on graduation is probably far less than the percentage of Harvard applicants who get accepted.

    @calmom, I must say I totally disagree (based on my experience - albeit somewhat limited)

    Data point:
    1. We pay our interns $25 an hour. We are not even a s/w company.
    2. My niece was paid $25 an hour after her sophomore year and $29 after her junior year. She is in s/w, though.
    3. Many interns at top-tier companies (google, facebook, et al) are paid even higher.
    4. My niece employment package had $10K sign-on bonus or up to $50K in relocation reimbursement. I proposed that she used me as her mover (charging $10K an hour - since she only needed to relocate about 50 miles) and then split the difference. She refused. L-) I think her sign-on bonus is on the low side.
    5. It is common to be granted RSU when you start (in the range of ~500 for a new BS/BA) vesting over 3 years. We know several kids who join ebay. Ebay is about $50 - so this is about $25K over 3 years (of course, Uncle Sam needs to take a cut)

    IMHO, if you are getting a s/w degree from a competent school, it is not a problem to have $50K of loan.

    PS: I wish they remove S and M from STEM. Some majors in SM do not offer very good employment prospect especially when you only have an UG degree.
    edited June 2014
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  • calmomcalmom 20393 replies166 discussionsRegistered User Posts: 20,559 Senior Member
    @Furrydog --do you offer an internship to every student who applies? If not, how many applications do you typically get for each open position? What do you pay the ones that you opt not to hire?
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  • thumper1thumper1 73027 replies3179 discussionsRegistered User Posts: 76,206 Senior Member
    The vast majority of graduates do NOT get jobs at Google, Facebook, eBay, they just don't.

    I agree with calmom. Keep your debt to a reasonable amount. Otherwise it has the potential to strangle you in your young adult, after college life.
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  • twoinanddonetwoinanddone 21932 replies14 discussionsRegistered User Posts: 21,946 Senior Member
    The "$30k/first year salary" rule of thumb came about because the $30k is what the student borrowing only Staffords can get, and the 'first year salary' someone made up, like that your engagement ring should be 3 months salary. Sounds reasonable, right?

    I will say that I'm not at all comfortable with my theater/art history child borrowing $30k, and have no problem with my engineer child doing it. Ironically, the engineer probably won't need to borrow that much because of internships or co-op work opportunities, and the other might but we're trying to avoid it by thinking of work alternatives including being an RA or having to work a fast food job rather than an unpaid acting internship or summer stock.
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  • calmomcalmom 20393 replies166 discussionsRegistered User Posts: 20,559 Senior Member
    Actually, the Stafford loan limit is under $25K for most students -- and there is some simply math behind the total loan=first year salary number. It has to do with the loan payments, which do vary depend on interest level -- but basically the idea is to figure out how much of a monthly loan payment a person can manage with a particular salary, keeping in mind that most students do not want to spend their post-college years occupying their parents' basement.

    The problem with the STEM rationale (engineers earn more) is that many students wash out of engineering programs, and some students don't finish college at all --but the debt remains. A high debt level creates its own economic pressures that might force a student to leave college, especially when some or all of the amount borrowed is unsubsidized.
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  • thumper1thumper1 73027 replies3179 discussionsRegistered User Posts: 76,206 Senior Member
    The Direct. Loan limit is $5500 plus $6500 plus $7500 plus $7500. I believe that is $27,000

    Still...I agree with Calmom...don't assume you will get a high paying job from the get go.

    To the poster above...my engineering major never wants to work as an engineer and is working an hourly wage job that has no benefits. It is NOT in the engineering field.

    My music major is working as a musician, and is paying his bills.
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  • colorado_momcolorado_mom 8817 replies78 discussionsRegistered User Posts: 8,895 Senior Member
    I think the "first years salary" came about because salary impacts ability to pay back loans. It was probably meant to discourage high loans for lower salary careers.

    OP - Even if you think your son will likely have a higher salary career, in your mind allow for the possibility that he may change plans midstream. The loans will need to be repaid regardless of the outcome.
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  • intparentintparent 36272 replies644 discussionsRegistered User Posts: 36,916 Senior Member
    If your son is that hardworking and going to make it no matter what, then he doesn't need to go to a very expensive school. What is your state flagship/
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  • calmomcalmom 20393 replies166 discussionsRegistered User Posts: 20,559 Senior Member
    My personal rule of thumb is not based on anticipated post-grad first year salary -- it is based on earning capacity at the time the loan is taken. For example, I think that my d's summer job after high school paid about $10/hour - that translates into a roughly a $21K annual salary. My son quit college at age 20 and earned about ~$25K while working full time. High schoolers who have some job skills and a history of earning more might be safe to borrow more.

    Anything else is speculative, although of course by the time a kid reaches senior year it's a lot easier to predict outcomes. The problem is that the "how much to borrow" question tends to come up early on when the kid is still in high school and both kid and parents are caught up in warm and fuzzy feelings about what the college experience will be. And maybe things will turn out well.

    But the debt doesn't go away if things don't work out as expected.
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  • furrydogfurrydog 224 replies2 discussionsRegistered User Posts: 226 Junior Member
    @calmom - no, we do not offer internships to all kids that apply. On the other hand, many kids turn us down because, frankly, they are given better offers. This year, we took about 20 interns but we are just a middling company. There are literally hundreds (if not thousands) of companies in the valley looking for interns every year. Of course, not all kids are offered an internship. However, IMHO, the chance is fair if you have an OK GPA. (yes, I did turn down bunch of kids with 1+ GPA - that is just way too low) and you present yourself well.
    I understand that nothing in life is certain. However, you should try to evaluate your risk/reward objectively. IMHO, some student debt can be justified/managed.

    @thumper1 - of course, not everyone works at Google, Facebook - that would not be a good thing (by the way, I am told that Google is not known to pay that well) However, there are really a lot of companies looking for s/w engineers including none s/w companies.

    I agree that it would not be good to get washed out of engineering program (or any other program) while you incur significant debts. But believe me, engineering is not pre-med. If you put in some effort, you should do ok.

    May be I am Pollyannish. Perhaps, other people who are much more familiar with engineering job market can chime in and tell me I am full of "brown-stuff".
    :D
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