Should You Take Out Student Loans—and How Much Must You Earn to Pay Them Back After Graduation?
- Frank B. Simpson Jr.
- 11 hours ago
- 4 min read
The reality check. Roughly 1 in 6 U.S. adults (42.7 million borrowers) currently has federal student debt, and the total balance sits around $1.63–$1.81 trillion depending on the data series and snapshot date. Published college sticker prices continue to rise in 2025–26, average tuition and fees are about $11,950 at public four‑year in state schools and $45,000 at private nonprofits (before aid), with out‑of‑state public around $31,880. Professional programs are even pricier: the average law school tuition/fees cluster in the $47.6K (in‑state public) to $53.6K (out‑of‑state/private) range, and the median medical‑school debt hovers near $215,000 (Class of 2025).
Coaching Takeaway: Debt is common and rising. Before you borrow, ground your decision in objective math—balance, rate, starting salary, and time to repay.
The “Typical Graduate”: Salary vs. Loan Balance
Employer surveys from NACE project Class of 2025 bachelor’s salaries in the mid‑$60Ks on average, with tech/engineering higher and some majors lower. Recent snapshots put the average federal balance per borrower around $39K (median near $20K); totals vary by data source and month.
Loan rates. For loans first disbursed July 1, 2025–June 30, 2026, fixed federal rates are 6.39% (undergrad), 7.94% (grad), 8.94% (PLUS).
Coaching Takeaway: Your first lever is what you borrow; your second is what you’ll earn. Locking in the lowest feasible debt and stepping into a marketable major matters.
Undergraduate Payoff (Passive vs. Moderate vs. Aggressive)
Assumptions: starting balance centered on $39,375, interest 6.39%, starting salary centered on $65,276 (NACE projection proxy), salary growth 3%/yr, 25% effective tax placeholder. We ran 15,000 simulated paths for each scenario:
Passive: IDR‑like simplification—pay 5% of net income monthly (cap at 30 years, no forgiveness modeled).
Moderate: Standard 10‑year amortization payment only.
Aggressive: Standard 10‑year payment + extra equal to 20% of net income (the “20” in the 50/30/20 budget goes to prepayments).
Results (median years to payoff):
Passive: 23.8 years median; 67% pay off within 30 years (others would require forgiveness/term extension).
Moderate: 10.0 years (by design).
Aggressive: 2.8 years median.
Coaching Takeaway: The 20% savings bucket aimed at prepayments can compress a 10‑year path into 3 years for many grads—then you redirect that cash flow to investing.
Graduate (Master’s) Payoff (Passive vs. Moderate vs. Aggressive)
Many master’s students borrow at graduate rates (7.94% for 2025–26), and start at higher salaries than new bachelor’s grads, but also often carry bigger balances.
Assumptions: starting balance $60,000, 7.94% rate, starting salary $80,000, salary growth 3%, 25% effective tax.
Results (15,000 paths, median years):
Passive (5% of net): 30.0 years median (cap); only 23% repay within 30 years.
Moderate (10‑yr standard): 10.0 years.
Aggressive (10‑yr + 20% of net): 3.3 years median; 4.0 years.
Coaching Takeaway: At graduate rates, minimum payments can linger for decades; prepaying with a disciplined savings rule restores speed and keeps interest in check.
Professional School (Law & Medicine)
Recent ABA surveys show law‑school debt often sits above $100K; the ABA Young Lawyers 2024 survey cites median law‑school debt at $112.5K, while other summaries show averages near $130K. The BLS reports lawyer mean earnings well above national averages, but the distribution is very wide by practice and region.
Assumptions: starting balance $130,000, rate 8.44% (midpoint of 7.94% & 8.94% commonly used at the grad level), starting salary $130,000, salary growth 4%, 25% effective tax.
Results (15,000 paths, median years):
Passive (5% of net): 30.0 years (cap); only 13% repay within 30 years.
Moderate (10‑yr standard): 10.0 years.
Aggressive (10‑yr + 20% of net): 3.8 years median; 5.2 years.
Coaching Takeaway: Law incomes can be high, but bimodal early‑career pay means prepayment discipline matters. Use the income test later in this article before you borrow.
Medicine (with residency)
The AAMC’s 2025 fact card shows median med‑school debt ≈ $215,000 (among indebted grads) and 4‑year COA medians around $298K (public) and $408K (private); grad rates are 7.94% (Unsubsidized) and 8.94% (PLUS). Physician pay varies widely; BLS pegs physician/surgeon median at ≥ $239K, while recruitment/compensation reports show general surgeons near $450K on average (subspecialties more).
Assumptions: starting debt $215,000; 50/50 mix of 7.94% & 8.94%; residency 5–7 years; resident salary $70K; attending salary $450K; 30% tax; salary growth 3%.
Scenarios & results (8,000 paths, median total time = residency + payoff):
Passive: Forbearance during residency; after residency pay 5% of net as attending → 30.0 years (cap) median total time.
Moderate: Standard 10‑year after residency → 15.0 years median total time.
Aggressive: 10‑year + 20% of net as attending → 10.2 years median total time; 12.3 years.
Coaching Takeaway: Tiny payments (or forbearance) in residency balloon balances; once attending, 20% of net can retire the debt only a few years after training.
A Simple, Evergreen Formula to Decide if Loans Make Sense
Use this before you borrow (or when considering grad/professional school):
Annual payment for your target horizon T years (standard amortization):
Annual Payment= B*R/1-(1+R)^-t
where B=borrowed at graduation, r=annual interest rate, T=years. (For federal loans, use the year‑specific fixed rates.)
Back‑solve gross pay if you plan to devote fraction k of net income (e.g., k=20% under 50/30/20) to debt:
Gross Income Needed=Annual Payment / k*(1−t)
where t=expected effective tax rate.
Decision rule: If projected starting salary is comfortably ≥ the required gross income, the loan amount is proportionate to your field. If not, re‑scope cost (school choice, scholarships, time‑to‑degree) or plan for a longer horizon (or IDR).
Quick Benchmarks (k = 20% of net, t = 25%)
Undergrad example – $40,000 at 6.39% (2025–26 rate):
5 yrs: Payment ≈ $9,597/yr → $63,979 gross needed.
10 yrs: ≈ $5,536/yr → $36,904 gross.
15 yrs: ≈ $4,224/yr → $28,161 gross.
20 yrs: ≈ $3,599/yr → $23,991 gross.
Med‑school example – $215,000 at 7.94%:
5 yrs: Payment ≈ $53,763/yr → $358,420 gross.
10 yrs: ≈ $31,955/yr → $213,031 gross.
15 yrs: ≈ $25,026/yr → $166,843 gross.
20 yrs: ≈ $21,801/yr → $145,337 gross.
(Figures are from the formulas above; adjust t and k to match your real tax situation and budget.)
Coaching Takeaway: No debt is great—but smart decisions sometimes mean borrowing. Many viable businesses carry debt; the key is cash‑flow fit. Test “What do I need to earn to be debt‑free in 5/10/15/20 years?”
Should You Borrow at All?
Undergrad: Compare all‑in 4‑year cost (net of aid) to likely salaries in your target industry and keep federal borrowing within what a 10‑year payment can handle at ≤20% of net.
Graduate/Professional: Borrowing can be rational if lifetime earnings and early‑career income support the formula above.
Coaching Takeaway: Debt isn’t the enemy—unpriced debt is. Put hard numbers to your plan before you sign promissory notes.
When in Doubt Seek the Help of a Financial Professional to Get a Personalized Plan
Wondering if your program pencils out—or how to structure repayment? Seek the support of a professional who will run a personalized financial model and cash‑flow plan for your situation: aid offers, likely salaries by metro, repayment strategies (standard vs. SAVE/IDR vs. refinancing), and a step‑by‑step budget. If you would like to speak with me book a complimentary Student Debt Strategy Session using the button below.
This article uses Monte Carlo simulations and clearly stated assumptions for illustration. Your outcomes will differ. The content does not constitute financial advice. Past results do not predict future results. Work with a trusted financial advisor on debt management, investments, taxes, estate planning, and savings tailored to you.
Written by Frank Simpson | Senior Private Wealth Advisor
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