Our View: College education pays off; you can minimize the debt
Tuesday, September 14, 2010
Posted Sep 14, 2010 @ 11:14 PM
Last update Sep 15, 2010 @ 12:18 AM
A college diploma was once thought to be so golden, it didn’t matter how much debt students got themselves into.
File that thought into the history books. The recession and the increasing cost of a college education have meant painful new lessons for students. The sooner they understand frugality, the better.
Several headlines show the urgency. The author of a financial aid website, finaid.org, said total student loan debt edged out credit card debt in the United States this summer. Mark Kantrowitz, publisher of finaid.org and fastweb.com, used a seasonally adjusted figure for credit card debt for June from the Federal Reserve of $826.5 billion. He then compared it with the total private and federal student loan debt of $833 billion.
"Student loan debt ... has been growing steadily because need-based grants have not been keeping pace with increases in college costs,” it says on the finaid.org site.
Meanwhile, student loan default rates have risen. Education Secretary Arne Duncan announced Monday the default rate for fiscal year 2008 (the latest data available) rose 7 percent, up from 5.2 percent in 2006. The figure was an average of the default rate for students at public, private and for-profit institutions.
We can expect both these problems to become worse, not better, so long as the economy remains bleak.
So what’s a poor student to do?
College remains a good bet for future earning power, in the long term if not the short term. Historically, people with bachelor’s degrees outearn people with high school degrees, but both groups are suffering now from high unemployment.
It is hard to talk to jobless college graduates whose loans are coming due about the earnings premium they will enjoy — eventually.
In the meantime, do your college student or soon-to-be college student a favor. Share the advice that accompanies this editorial. Talk up the community college option, which usually means taking on little or no debt.
Cite the good example of a growing number of college freshmen, who aren’t waiting until senior year to darken the doors of campus career counseling. As explained in Sean Driscoll’s Sept. 13 blog post on rrstar.com, students are thinking early and often about what jobs they could do, what kind of salary they could command and what is the best academic preparation for their field.
A good yardstick is to incur no more debt for your college education than you expect to make in your first year of a job.
How the lectures change in five years.
In May 2005, we published an editorial with the headline, "Harsh reality needed for debt-loaded young people.” We wrote about how household debt levels were at all-time highs in the United States. How Illinois and other states had it right in offering personal finance classes as a requirement to graduate from high school.
"In budgets with little breathing room,” we wrote, "it is important for young people to learn early the dangers of being overextended and the wisdom of a used Civic versus a new SUV.”
Now they have to learn fast how to kick the tires at colleges — and make sure that loan payment doesn’t bankrupt them, either.
How to keep the college costs down
To control student loan debt and reduce the costs of a college education:
Fill out the Free Application for Federal Student Aid (FAFSA) at www.fafsa.ed.gov. It’s a first step for determining financial aid at colleges.
If you qualify for federal loans, exhaust those first. They are cheaper and have better repayment terms than private student loans.
Be frugal now — you won’t have to be so frugal when you graduate.
Don’t borrow more for college than your expected starting salary when you graduate. If you do, you will be at higher risk of default.
Don’t borrow more than $10,000 per year.
Tap local scholarships. Since 1994 the Community Foundation of Northern Illinois has made more than $1 million available on behalf of families, businesses and service organizations. Go to cfnil.org and click on "scholarships” on the left panel of the home page.
This story appeared at http://www.rrstar.com/carousel/x560100420/Our-View-College-pays-off-you-can-minimize-the-debt on September 14, 2010.