Why repaying your student loan gets easier with time

How much money can students borrow for college without swimming in debt? According to the conventional wisdom, that depends on the income they expect to earn after graduation.

But that may be the wrong way to think about it. A new study by the Brookings Institution suggests that focusing on starting salary can be misleading because many new grads see a rapid rise in pay -- a median hike of 65 percent -- in their first five years of employment. Much of that increase comes from graduates getting full-time employment and switching jobs as they look to advance their careers. In only a handful of college majors do earnings grow less than 25 percent over the first five years after a grad starts working.

Not surprisingly, a hefty boost in pay makes debt more manageable. While average student debt varies, the researchers estimate that the average undergraduate carries debt of $26,500. The study focused only on bachelor's degree recipients who did not earn an advanced degree.

Average Student Debt by State | FindTheBest

The graduates who begin with the lowest salaries are more likely to see faster earnings growth early in their careers. Majors with the lowest initial salaries of the 80 academic disciplines examined were, in order, physical/health education, ethnic studies, speech, fine arts/studio arts and theater. Graduates in some low-paying fields enjoyed salary increases of over 100 percent in their first five years of employment.

Grads in some higher paying majors saw gains of no more than 30 percent. Not surprisingly, the majors with the highest initial salaries were all engineering related. The best paying non-engineering major for new grads was nursing.

Students who graduated with average debt and and earned a typical salary devoted 14.1 percent of their first-year income to paying down their college loans. By the 10th year of employment, monthly student debt payments consumed only 6.5 percent of their earnings.

During their first year out of college, 8 in 10 grads with student loans devoted more than 10 percent of their earnings to paying down debt. But fewer than 1 in 8 paid this percentage by the fifth year.

If you want to play around with your own figures, the Brookings Institution has created a student loan repayment calculator that shows the share of earnings necessary to service traditional loan repayment for 80 academic majors.