How do you know what you owe?

Total student loan debt outstanding exceeded credit card debt in 2010 and auto loan debt in 2011, and reached the $1 trillion mark in 2012. While these milestones are impressive, it is more important to consider the impact of student loan debt on individual borrowers.

The average debt at graduation for the two-thirds of bachelor’s degree recipients who graduated with debt last year is about $28,000. If averaged among all bachelor’s degree recipients, not just those with debt, the figure is about $19,000. Other commonly reported figures include the average debt of all borrowers (not just recent graduates), the average debt of all undergraduate students (not just bachelor’s degree recipients) and the average debt of all borrowers who owe on their student loans (not just undergraduate students).

There is not a lot of good data about average debt at graduation. The National Postsecondary Student Aid Study provides aggregate and average data for cumulative federal and private student loans, but the study is conducted only once every four years. The Common Data Set surveys are annual, but the surveys are voluntary with only about half of colleges responding, and many of the more expensive respondents omit information about average student loan debt at graduation. The National Student Loan Data System has comprehensive information about federal student loans, but the U.S. Department of Education does not let researchers have access to this data. The Federal Reserve Bank of New York samples credit reporting agency data to measure student loan debt outstanding, but the data is inaccurate and the sampling methodology is biased toward older consumers, causing it to underestimate debt outstanding and overestimate delinquency and default rates.

Student loan debt at graduation should be less than the expected annual starting salary, and ideally a lot less.

Student Debt rates

What borrowers need is data concerning average debt at graduation for their degree level, field of study and institution. This debt data should also be linked to data concerning unemployment rates and average starting salary. This would help students make a more informed decision concerning the tradeoffs between college affordability and other criteria, such as quality and fit. This kind of data is not yet available except in a handful of states.

In the meantime, there’s a good rule of thumb students can follow: total student loan debt at graduation should be less than the expected annual starting salary, and ideally a lot less. Student loan debt can be estimated by multiplying the first year debt by the length of the educational program. Salary data can be obtained from a variety of sources, including National Association of Colleges and Employers, payscale.com, salary.com and bls.gov.

If total student loan debt is less than annual income, the student will be able to repay her student loans in 10 years or less. If total student loan debt exceeds annual income, the borrower will struggle to repay her loans and will need an alternate repayment plan, such as extended repayment or income-based repayment (or the new pay-as-you-earn repayment plan), in order to afford the monthly loan payments. But this means that the borrower will be repaying her loans for 20 or even 30 years, affecting her ability to access the American Dream. Students who graduate with too much debt tend to delay life cycle events, such as buying a car, getting married, having children, buying a house, saving for their children’s college education and saving for retirement.

Students can cut college costs (and debt) in several ways. First is by enrolling at a less expensive college, such as an in-state public college or one of the six dozen colleges with generous “no loans” financial aid policies. Tuition and fees, however, represent only about half of college costs. So students can economize in other areas, such as  buying used textbooks and selling the textbooks back to the bookstore at the end of the semester, minimizing trips home from school, and cutting personal expenses especially for food and entertainment. Live like a student while you are in school, so you don’t have to live like a student after you graduate.

Mark Kantrowitz is a nationally recognized expert on student financial aid, scholarships and student loans. He is senior vice president and publisher of Edvisors Network. Before joining Edvisors, Kantrowitz was founder and publisher of FinAid.org and publisher of Fastweb.com. Kantrowitz has been quoted in more than 5,000 newspaper and magazine articles in the last five years. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Newsweek and Time magazine. He also writes extensively on student aid policy. Kantrowitz serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, is a member of the board of trustees of the Center for Excellence in Education and is a member of the board of directors of the National Scholarship Providers Association. He has two bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology and a master’s degree in computer science from Carnegie Mellon University.