How Much Student Loan Debt Is Too Much? 3 Scenarios and Next Steps

Think you borrowed a “reasonable” amount of student loans—but still feel buried in debt? Even if you followed the common rule of not borrowing more than your starting salary, monthly payments, high interest, or excess loan refunds can quickly make your debt feel unmanageable.

According to the Consumer Financial Protection Bureau, for instance, you shouldn’t accumulate more student debt than you expect to earn in annual salary during your first year in the professional workforce. In practice this means, if you expect to earn $65,000 in the first year of your career, you should leave school with no more than that amount in student loan debt. This rule of thumb assumes you can pay off your loan debt within 10 years. 

But how realistic is that?

In this guide, we’ll help you figure out if your student loan burden is actually too much—and what to do if it is. From income-driven repayment plans to returning unused loan funds, we’ll walk you through smart, practical steps to regain control.

Table of Contents

1. 1. Monthly payment too high
   1. What you can do about it
      1. a. Apply for income-driven repayment
      2. b. Explore loan forgiveness
      3. c. Deferment or forbearance
      4. d. Negotiate a new repayment plan
      5. e. Hardship benefits
2. 2. Too many monthly payments to manage
   1. What you can do about it:
      1. a. Refinance and consolidate all loans together
      2. b. Refinance and consolidate federal and private loans separately
3. 3. You got a student loan refund, have more funds than you need.
   1. What you can do about it
      1. a. Return refunds to the lender
      2. b. Use for other education-related expenses

1. Monthly payment too high

Let’s assume the following:

• You have $65,000 in student loans at 5% APR with a monthly payment of $689. 
• Assuming a $65,000 gross annual salary, you take home $4,455 per month.
• After making your student loan payment, you have $3,766 left. 

Now, think about other monthly expenses you might need to cover:

• Rent
• Insurance
• Auto loan
• Utilities
• Phone and internet
• Healthcare
• Groceries and food
• Childcare
• Pet care
• Credit card payments

It’s easy to imagine how that may not leave much extra cash to cover basic living expenses or have a little fun. And the take-home pay number above doesn’t account for anything you might contribute to your 401(k). 

In this scenario, you might feel you have too many student loans after following the salary rule of thumb.

What you can do about it

Options if you have federal student loans	Options if you have private student loans	Options if you have both
Income-driven repayment	Refinance	Refinance
Loan forgiveness	Payment plan renegotiation	Manage each loan type separately
Deferment or forbearance	Hardship benefits
Consolidation

a. Apply for income-driven repayment

Loan types: Federal

Income-driven repayment (IDR) tailors your student loan payments to what you can realistically afford based on your income and household size. The four income-driven repayment options are:

• Saving on a Valuable Education (SAVE) (formerly REPAYE)
• Pay As You Earn (PAYE) 
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)

The upside is that you can reduce your monthly payment—to $0 in some cases. After 20 or 25 years, any remaining loan balance is forgiven. 

However, interest can continue accruing on your loans, leaving you with a larger amount to repay. If you no longer qualify for IDR, you may feel even more burdened by your loans. 

b. Explore loan forgiveness

Loan types: Federal

Public Service Loan Forgiveness (PSLF) might be worth considering if you plan to work in a public service role. You’d enroll in an IDR plan and make 120 qualifying payments. After making those payments, you could get the rest of your student debt forgiven.

That’s terrific if you borrowed a larger amount in federal loans to pay for school. But qualifying can be difficult. Failing to follow all the Department of Education’s guidelines could cause you to miss out on getting your loans forgiven.

c. Deferment or forbearance

Loan types: Federal and private

Deferment and forbearance allow you to pause loan payments under certain conditions. If you’re experiencing a financial hardship that’s making it difficult to pay your loans, you might qualify for both. 

The main difference between the two is that interest doesn’t accrue on some types of Direct Loans during a deferment, but it will during a forbearance. In other words, forbearance could leave you with more loan debt to repay. 

d. Negotiate a new repayment plan

Loan types: Federal and private

You might try contacting your lender to explain your financial situation and ask about restructuring your loan payments. Unlike refinancing, this wouldn’t affect your interest rate but could make your payments more manageable. 

Lenders aren’t obligated to honor your request. But it may be worth asking for a modification if changing your loan terms would give you breathing room in your budget. 

e. Hardship benefits

Loan types: Federal and private

Private student loans aren’t eligible for federal deferment or forbearance options, but some lenders may offer an equivalent. SoFi, for instance, offers multiple repayment options in case of hardship, including:

• Deferment
• Forbearance
• Payment reductions
• Loan modifications

If you’re unsure what your lender offers, it’s worth making a phone call or sending an email to ask. 

What is a realistic way to assess whether your student loan debt is manageable? Our expert weighs in

Erin Kinkade

CFP®

This is difficult to generalize, but students can research the entry-level position pay for the career they’re pursuing in an average-to-low cost-of-living area to remain conservative on the pay. (I realize some jobs may be immune to demographics.) Once they determine a rough earnings estimate, I suggest they create or get help creating a hypothetical repayment plan over the average years the loan needs to be paid—and then create a hypothetical budget to ensure the payments are a staple of their monthly expenses. But if a student needs to take out loans to educate themselves to gain employment and earn income, it is an investment in themselves. They shouldn’t forgo this because their loans don’t meet the standard rule of thumb.

2. Too many monthly payments to manage

If you have too many student loans to repay individually each month, you’re more likely to miss payments and end up with accrued interest and penalties for late payments.

What you can do about it:

a. Refinance and consolidate all loans together

Loan types: Federal and private

Student loan refinancing means taking out a new loan to pay off your current ones. This can offer several advantages:

• Potentially lower your interest rate
• Reduce your monthly payment
• Extend your loan term

You’ll typically need a good credit score to qualify for the best student loan refinancing rates. If you have less-than-perfect credit, getting someone to cosign your loans could help you get more favorable terms. 

There’s no rule preventing you from refinancing federal student loans into a private loan, and you might consider it if you want to streamline payments or get a lower interest rate. However, you’ll lose valuable benefits and protections that come with federal loans, including:

• Deferment and forbearance options
• Loan forgiveness options
• Income-driven repayment options

Once those benefits are gone, you can’t get them back. So it’s wise to weigh the pros and cons of refinancing before deciding. 

b. Refinance and consolidate federal and private loans separately

Loan types: Federal and private

Another option, if you don’t want to lose those federal protections and benefits, is to manage your federal and private loans separately.

For example, you might refinance and consolidate your private loans into one single private loan, while also applying for an income-driven repayment plan to manage all your federal loans at once. 

3. You got a student loan refund, have more funds than you need.

If you got money back from your school, you might have borrowed more than you needed. To put it another way, your cost of attendance was less than your loan amount. 

When you get money back from student loans, you have several choices:

• Use it to cover other education expenses, including basic living expenses
• Put it in a savings account to cover potential shortfalls from future loan disbursements
• Send it back to the lender

What you can do about it

a. Return refunds to the lender

Loan types: Federal and private

If you don’t need the extra funds, sending student loan overages back to the lender is often the best option. The lender can apply that amount to your loan balance, so you have less to repay when you leave school.

b. Use for other education-related expenses

Loan types: Federal and private

This isn’t recommended. It’s best practice to only borrow what you need, to have less to pay back later on. It’s also risky, as you might run into issues if you use the money for the wrong thing.

That said, if you decide to keep your refund, you may want to check with your lender to see whether it has prohibited uses for the money.