How Not to Move Back in With Your Parents

Student Loans, Scholarships & Debt Podcast Episodes

Student Loans
Student Debt

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Here's what Pete and Alex (and special guest Phil) have to say about borrowing while in college.

Read the Show Notes

When it comes to borrowing for college, a generally accepted rule is that you should not borrow more than your first year’s income. The problem with that axiom is the assumption that future graduates have a good handle on starting salaries. NADA! They don’t.

Average Starting Salaries

Look at the average starting salaries below provided by NACE. The good news is this salary information should affirm a 4-year degree is indeed a good investment.


2013 Average Salary

2012 Average Salary

Percent Change









Computer Science












Health Sciences




Humanities & Social Sciences




Math & Sciences








Before you get too excited about this recent data, don’t forget that averages can be deceptive; some graduates are on the high side, but most are on the low side. Inaccurate estimates of future salary can cause students to borrow too much.

Combine that with the recent trend of students assuming fast advancement and acceleration of salary and you’ve got a recipe for financial disaster. Too many 22-year-olds think they will be making $50,000 in five-years---that’s a mistake. In fact, be careful that you don’t fall into the trap of thinking you’ll start off as being paid the average salary of a category because chances are, you’ll be at starting salary level (10th percentile).

Starting Salaries in Reality

Look at the business category, for example; that label includes all majors from accounting and finance to marketing and management, and their pay ranges vary greatly. The data from NACE includes graduates from the East to West coast employed in cities from Boston to Chillicothe, Ohio. Just keep a perspective that is reality-based.

If you go to a business job fair you’ll find Enterprise Car Rental scooping up soon-to-be graduates. Starting salary for an Enterprise management trainee is about $32,000---that’s reality and that’s what you should be expecting to make.

Thinking about becoming a teacher? Demand for teachers is a function of specialty and geographical location. Urban areas across the U.S. need teachers, and where the jobs are particularly challenging (i.e., inner cities) the salary is higher. In Indiana, the average starting salary for a new teacher is $33,000.

How about healthcare? Nursing is a big major at Indiana University’s seven campuses. Experienced degreed nurses in Indianapolis make $60,000+, but new RN’s are more likely to start closer to $39,000.

Tie Your Student Loan Limits to Your Likely Starting Salary

Take note that the example occupations used in this message, despite them all having very high earning potentials, all have starting salaries in the $30’s. Then, think about how the maximum borrowing for Stafford Loans (dependent student) is $31,000. With this situation, the only way you can borrow more than your first-year salary is by venturing into private loans, which you do not want.

In the world of Credit Reports, individuals are measured on debt load (ratio). Monthly debt payments should not exceed 36% of gross monthly income. For example, if your monthly income is $3,000, total debt payments should be no more than $1,080 [$3,000 x 36%].

The team at MoneySmarts thinks the best way to approach borrowing and resulting payments is to contemplate what you know you can afford to pay based upon, net monthly pay, not gross pay. Go to the MoneySmarts “resources” section and from “career” select your career objective. Then “plug-in” salary to the “paycheck and budgeting estimator.” You’ll quickly conclude that a 36% debt ratio isn’t a good guide.