Just How Bad Is Your Student Loan Debt? This Number Will Tell You

Carrying debt isn’t inherently bad. In some cases, it can be beneficial to your long-term finances. For example, taking on student loan debt could boost your career earnings by significantly more than the cost of the loans. The median person with a bachelor’s degree earned over $32,000 more per year vs. someone whose education stopped after high school in 2024, according to the Federal Reserve Bank of New York.

However, that doesn’t mean that student loan debt is good. Much depends on how much debt you’re carrying and how you use your degree to earn a living. As we’ll show here, a few simple metrics can give you a better sense of the impact of your student loan debt on your budget, as well as what to do about it.

Understanding Student Loan Debt

Many people struggle to afford the tens of thousands of dollars in annual college tuition, as they often don’t qualify for enough grants or scholarships to cover the full cost. So they take out student loans to cover the gaps, with plans to pay back that money (plus interest) once they start their careers. 

In all, about 30% to 40% of undergraduates take out federal student loans each year, which climbs to about half of undergraduate students who live independently (48.2% as of 2024). On average, they end up owing $39,079 in federal student loans.

Paying this money back isn’t easy—more than 9 million borrowers are in default or delinquent on student loan repayments as of April 2025. High interest rates and penalties can add to initial borrowing costs, so if you fall behind on payments, it’s even harder to catch up, leading to a debt spiral. 

One Way To Determine If You Have Too Much Student Debt

To avoid becoming a statistic on student loan debt defaults or delinquencies—or to simply make your monthly finances easier on yourself—it’s important to understand how your level of student loan debt fits into your overall financial picture. Of course, your personal situation will also depend on other factors, such as your savings, the cost of living in your area, and other debts. 

A rule of thumb suggested by the University of South Florida’s admissions team can help you assess how your loan payments fit into your overall budget. The advisors there recommend limiting your monthly student loan payments to no more than 8% to 10% of your gross monthly income.

To compare the two numbers, divide your current monthly loan payment by 0.08 and by 0.1. Now look at the results next to your gross monthly income. If your income is the higher number, you’re balancing a manageable amount of student loan debt. If your income falls between the two loan results, you’re still likely able to manage the payment as part of your budget.  

But if the numbers you got by dividing your loan payment are higher than your gross monthly income, that’s a sign that your debt may be higher than you can comfortably manage.

Strategies To Reduce Your Student Loan Debt

If you’re feeling pinched by your student loan debt, here are a few ways to get a better handle on it:

• Make extra payments if possible: Tax refunds, bonuses, or even a check you got as a holiday gift could all go toward reducing your balance, making your monthly payments more manageable.
• Make biweekly payments: Splitting a monthly payment into two biweekly ones can reduce interest and lets you make an extra month’s worth of payments each year, helping you pay down your balance faster. 
• Set up automatic payments: This ensures you always pay on time, avoiding penalties and extra interest.
• Pay the interest: At the very least, paying the interest, even when it’s not required, can help you avoid accumulating a larger balance. 
• Consider consolidating or refinancing: If you have multiple federal loans, a direct consolidation loan might help you obtain a lower combined rate. You could also potentially refinance with a private lender for less. 
• Ask your employer about repayment assistance: Some companies offer assistance, such as putting retirement contribution matches toward student loans.
• Enroll in an income-driven repayment (IDR) plan: Although several changes have occurred under the new administration, IDR options remain available. Review the different plans to see if you’re eligible for options that might ease the financial pressure.

The Bottom Line

To best manage your student loan debt, consider trying to keep your loan payments to 8% to 10% of your gross monthly income. If you’re struggling with your debt load, there are ways to improve your situation, like adjusting your repayment plan or throwing any extra money toward your balance.