As you may know from the About the Author section of my book, in my day job I'm the director of institutional research at Seattle University.  In that role I look at many statistical reports on high school and college. As the author of Winning the College Game I am looking to surface information that will help students, parents and advisors understand how the system works and how they can receive maximum educational value for their investment of time and money.

It was for this reason that, while reviewing the 2007-2008 National Postsecondary Student Aid Study by the National Center for Educational Statistics, I found a single number I want to share and discuss.  The number was the average annual borrowing of students taking on student loans that year - $7,100.

How does sharing this number help you better understand how to get value from a college education? I think there are two reasons to keep it in mind.  First, many students go much further in debt completing their degrees, so you can use this figure as a benchmark against which to evaluate your own borrowing plans. If it will take more than $7,100 per year of borrowing to attend a college that admitted you, perhaps they are offering you a less attractive financial aid package than you could receive at another college. By knowing what is typical, you will be less likely to accept taking on two or three times this debt load in order to pay for college.

Second, this figure allows me to update one of the examples I use in the book and in articles on this site.  I have discussed whether it makes sense to borrow in order to get through college by discussing how $20,000 in debt at graduation would impact your financial future.  That $20,000 was based on a model budget used in many colleges that called for borrowing $5,000 per year.  Let's update that to $28,400 and see how the numbers play out.  Assuming this is subsidized student loans, where the interest and payments aren't due until after graduation, and assuming a favorable interest rate of 6%, after you graduated you would be on the hook for a monthly payment of $309.31.  If you worked full time, you would have to make an extra $1.78 per hour to break even.  For most college graduates your earnings will be at least this much higher, so while the monthly payment seems painful, you are still better off even in the short run.  Over the long run you will have paid off the debt and will continue to enjoy the benefits of higher earnings.  However, the loan payments may mean you think a bit more about finding a career that pays well than you would otherwise.

What if you don't qualify for subsidized student loans? If you borrowed $7,100 at the start of each year, and interest accumulated at the rate of 8%, by the end of four years you would have a debt of $34,553.  Your monthly payment would be $416.45, and you would need to earn an extra $2.40 per hour to cover that payment and break even.  This is still possible, but getting harder.

What if you are reckless? If you borrow $20,000 per year and accrue interest at a rate of 8% you will graduate with a debt of $97,332.  Paying it off in ten years would take a payment of $1,173.09, which would require an extra $6.77 per hour.  That is still possible, but probably not with anything other than a professional degree (nursing, engineering, finance, etc.).

Hopefully by reflecting on these examples you can develop a well informed debt tolerance when it comes to paying for college.  Refusing to borrow anything may be a poor economic decision, but that doesn't mean that any amount of borrowing to pay for college is justified.  Knowing that on average students are having to shoulder a manageable $7,100 per year may help you avoid signing up for much higher borrowing.  If you don't need to borrow even that amount, knowing these figures may at least help you accurately count your blessings.