College pays, but does the debt?

Gayle B. Ronan • E-mail

When college seniors complain about their heavy loads, they may not be referring to their courses.

Nearly two-thirds have outstanding loan balances according to the latest Postsecondary Student Aid Study, published by the U.S. Department of Education.  While these balances average just over $19,000, 25 percent of the students owe nearly $25,000 and a tenth were expected to graduate owing in excess of $35,000. And, this excludes any borrowing done on credit cards or by their parents.

Historically, college degrees have offered higher earnings over that of a high school diploma, justifying the debt burden for most graduates.

And they still can, just to a lesser extent.

The College Board’s Education Pays 2006 report estimates degreed women, aged 25 to 34, earn 70 percent more than their high school diploma holding peers. For men, the differential is 63 percent.  Over a working lifetime, even after the cost of attending college and forgoing several years’ worth of earnings while in school, most graduates can expect a financial payback.  But the payback often lessens with the amount of debt carried to finance the degree.  It can also delay the experience of feeling that one has an earnings advantage.

“Debt creates a drag on a young adult’s finances for at least a decade, impairing their ability to save for emergencies, a home, retirement and it often limits their career and lifestyle choices,” says Tamara Draut, author of Strapped: Why America’s 20-and 30-Somenthings Can’t Get Ahead and director of the Economic Opportunity Program at Demos, a New York City-based think tank. 

The debt also leaves many young adults caught between the proverbial rock — the need for a degree — and a hard place — the financing of that degree. It is a position made more manageable by minimizing borrowing costs and pursuing possible strategies for trimming college expenses outright.

Where do students and their families begin?

Forego extra credit costs
Contrary to the impression left by some of the current advertising campaigns for private lenders, government financing is readily available, affordable and may become more so given the proposals currently winding their way through Congress.

“The most important thing for families to do is to fill out the Free Application for Federal Student Aid, or FAFSA, each year,” says Draut. Even upper-income families should apply as well, as even if their situations are unlikely to generate federal grants, federal loans are also available to them.

Under the Government’s Stafford Loan program, students may borrow $3,500 in the first year of school; $4,500 for the second; and $5,500 for their junior and senior years. After that many students assume they need private loans. However, the government’s PLUS program for parents was actually designed to kick in and cover whatever remains left to finance.

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