Taking out too much in student loans can result in a large amount of debt that is difficult to repay, potentially leading to financial distress and damage to credit score.
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Taking out too much in student loans can have serious consequences for individuals. While loans may seem like an easy financial solution at first, they can quickly become a burden that negatively impacts one’s financial well-being and future opportunities.
One of the primary risks associated with taking out too much in student loans is the potential for significant debt that can take years or even decades to repay. This can lead to financial distress, and in some cases, can damage one’s credit score. As Huffington Post writer Rebecca Safier notes, “When you take out too many student loans, you risk not being able to make your payments on time, which can do major damage to your credit score.” This can make it difficult to access credit in the future, impacting one’s ability to purchase a home, a car, or even to obtain certain jobs.
Another issue related to taking out excessive student loans is the impact on one’s future earnings potential. Studies have shown that high levels of student loan debt can lead to lower earnings over the course of one’s career. A 2015 study by the Federal Reserve Bank of St. Louis found that “higher student loan debt levels lead to lower homeownership rates, lower chances of entrepreneurship, and lower levels of accumulated wealth.” While college graduates typically earn more over the course of their lifetime than those without degrees, excessive student loan debt can negate this advantage and lead to a less stable financial future.
To further illustrate the potential risks of taking out too much in student loans, consider the following table of student loan debt statistics:
| Average student loan debt per borrower | $32,731 |
|---|---|
| Total student loan debt in the U.S. | $1.56 trillion |
| Percentage of college graduates with student loan debt | 70% |
| Average monthly student loan payment | $393 |
As you can see, student loan debt is a significant issue in the United States, impacting millions of people and potentially causing financial hardship for years to come.
In short, while student loans may be a necessary part of paying for college for many individuals, it is important to carefully consider one’s options and avoid taking out more debt than is necessary. As author and financial expert Dave Ramsey has said, “Student loans aren’t evil, but they sure can make you feel that way. They are way too easy to get and way too hard to get out of.” By weighing the potential risks and benefits of student loans and making informed decisions about borrowing, individuals can set themselves up for long-term financial success.
Video answer to “What happens if you take out too much in student loans?”
In the video “What Everyone’s Getting Wrong About Student Loans,” John Green explains that average student debt amounts can be misleading. While 65% of graduates with loans have an average debt of $28,000, the average debt for any borrower is actually $39,000. This is because graduate school loans, particularly for law and medical school, significantly contribute to the total debt amount. Additionally, 40% of students with loans do not receive a degree, and often face financial pressures that lead to dropping out and struggling with loan delinquency.
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If you borrowed more than what you need, you can return the leftover student loan money to the lender to reduce the amount you owe. The college financial aid office can help you do this. You also have the option of keeping the leftover student loan money.
If you borrowed more than what you need, you can return the leftover student loan money to the lender to reduce the amount you owe. The college financial aid office can help you do this. You also have the option of keeping the leftover student loan money. But, like all student loans, the student loan will have to be repaid, with interest.
When you borrow too much money, the remaining amount will appear as a credit in your student loan account. You can receive that credit as a refund check to cover other expenses or return the money to the Department of Education and reduce your student loan debt.
One of the best things you can do is return the excess funds. When you take out federal student loans, the money will start accruing interest immediately (unless you have subsidized federal loans). But for those with unsubsidized federal loans or private student loans, you’ll start being charged interest as soon as the funds are disbursed.
Taking on large amounts of student loan debt could put your projected retirement timeline at risk—especially if you can’t work for as long as you expect. If you take on too much student loan debt, it may be possible to lighten the burden by changing repayment plans.
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| Year in school | Annual borrowing limit, subsidized loans for independent students |
|---|---|
| First-year undergraduate students | $3,500 |
| Second-year undergraduate students | $4,500 |
| Third- and fourth-year students | $5,500 |
| Aggregate loan limits | $23,000 |
May 17, 2023
You’ll also want to think about where you’ll go to school. Most states’ student debt average falls in the $30,000-40,000 range. There are a few outliers, however. The District of Columbia, Georgia, and Maryland all have average debts higher than $40,000.