A college education is an investment. You spend all that money on tuition because a college degree is essentially a necessity in today’s job market. And no matter what route you take – private university or state college, local or out-of-state, 2 year program or 4 year program, etc. – there’s a very good chance you’re going to have to finance all or at least some of your education.
This means that when you leave school and enter the job market you won’t go alone – you’ll be bringing a healthy amount of student loan debt with you.
If your college education was merely an investment, you’d look for the degree with the best return on investment. Real life doesn’t really work that way, though. We each have unique skills and interests which make us qualified for certain careers, and slightly less qualified for others. That’s a good thing, because it turns out that a functioning society requires a lot of different people doing different jobs.
There is a pretty significant divide, however, between the earning potential for some degrees, versus the earning potential for others. Similarly, some degrees cost more to complete than others. That begs the question: which degrees give you the highest earning potential for the money, and which give you the worst?
Student debt vs. your budget
Credible is a student loan refinancing company. Using data from over 11,000 loan applications, they were able to put together a list of debt-to-income ratios for applicants, sorted by degrees. These are the degrees with the five highest debt-to-income ratios:
- Veterinary science: 14.62 percent
- Psychology (undergraduate): 13.23 percent
- Law (graduate): 12.67 percent
- Education (undergraduate): 12.06 percent
- History: 11.82 percent
This means that if you went to school to become a veterinarian, you could expect your student loan payments alone to eat up nearly 15 percent of your income.
By contrast, these are the degrees with the best debt-to-income ratios:
- Economics (undergraduate): 6.70 percent
- Engineering: 6.88 percent
- Nutrition (undergraduate) 7.37 percent
- Accounting (graduate): 7.91 percent
- Medicine (graduate): 8.78 percent
Everything is relative
Ideally, your total debt-to-income ratio should be approximately 36 percent. The higher the ratio climbs, the greater a percentage of your income is dedicated to debt repayment and the less you have available to manage other costs or achieve certain financial goals. So while 12 percent, for example, doesn’t seem like a lot, that’s a third of the recommended 36 percent, which doesn’t leave a lot of room for car loans, mortgages, or credit card bills.
Also, keep in mind that an inexpensive degree that results in a low paying career may yield a similar debt-to-income as an expensive degree that results in a high paying career, but that difference in earning potential can have a major impact on your overall debt-to-income ratio.
The best example is a lawyer and a teacher. Comparing only student loans, those two careers have very similar debt-to-income ratios because law school is expensive and teachers are (unfortunately) paid rather poorly. But when mortgages, car payments, and credit card debt are factored in, the debt-to-income for those with a law degree is just a shade over 36 percent, while those with a degree in education have a debt-to-income of nearly 70 percent – the highest of any career.
The right path for you
Of course, just because a certain field of study has a high ratio of student debt to potential income doesn’t mean it’s not a career worth pursuing. We need teachers! We need vets! But it is important to keep in mind that certain careers will most likely put you in a more difficult financial position, which just means that you have to be even smarter about how you spend your money. If you're struggling to manage your student loan debt, consider speaking with a trained student loan counselor. They can help you understand your options and create a repayment plan that works for your budget.