How Much College Loan Debt is Too Much?

The typical student graduates from college with $23,200 in college loan debt.

That figure, which comes from a recent study from the Project on Student Debt, only includes student loan debt. The $23,200 tab does not include money that parents borrowed through the federal PLUS loan program, a home equity line of credit or by dipping into retirement accounts.

Is the $23,200 figure a reasonable amount of student debt? It depends on what type of student loans an ungraduate is using. That level of debt will often be manageable if the student only borrowed through federal student loans. For most students that will mean obtaining federal Stafford loans.

Federal student loans have built-in protections that private student loans, which are also called alternative student loans, don’t.

Federal student loans:

• Have fixed interest rates.
• Students receive the same rate regardless of credit scores.
• Offer student loan repayment plans based on grad’s current salary.
• Offer a public service student loan forgiveness program.

There is a limit, however, to how much cash a student can borrow through a federal Stafford loan. For the 2009-2010 school year, here is the maximum students can borrow:

• Freshmen: $5,500
• Sophomores: $6,500
• Juniors: $7,500
• Seniors: $7,500

Here’s the bottom line: I’d suggest that when students are considering borrowing for college they should only use federal loans. If they do, there is far less chance of getting into financial trouble after graduation.

Lynn O’Shaughnessy is the author of The College Solution and she also writes a college blog for CBSMoneyWatch. Follow her on Twitter.