“I’m going to be in a lot of trouble,” jokes Drew Johnston as he reflects upon the college debt he already has and will incur. Johnston (not his real name) is a medical student at Washington University in St. Louis, Mo., who already has his undergraduate degree. With tuition at just over $50,000 per year, Johnston expects to have nearly $300,000 of college debt before he can add the M.D. at the end of his name. “Even though doctors can make good money, budgets are still tight during the first few years—well, it’s more like 10—after graduation,” he said.
While Johnston’s projected debt is not typical, nearly 67 percent of college undergraduates with four-year degrees have student loan debt when they graduate, according to an October 2012 report by The Institute for College Access & Success. This means that one in five households in the United States have college-related debt.
Breaking down college debt
Getting an education may be one of the more complicated financial decisions you’ll have to make in your life. The average amount of college debt graduates with four-year degrees face is nearly $27,000. However, this amount varies widely by state, school, living expenses and financial assistance. In reality, debt for undergrads ranges between $17,000 and $32,000. Factors that contribute to the cost:
How much a college costs
When you visit your high school counseling office, career planning office or library, you’ll find a handful of books and magazines that tell you the average cost to attend the colleges that interest you. To get more detailed information, go to the colleges’ websites and look for the academics or admissions sections. With a little digging, you’ll find information about tuition and fees.
An even better option is a Financial Aid Shopping Sheet. Once a college or university accepts you as a student, it can send you a Shopping Sheet that clearly outlines the estimated cost of attendance (including the costs of tuition, fees, transportation, books, housing, meals and supplies) in a way that’s simple to understand. The sheet also includes information about the grants and scholarships you’ve received, options available to help you pay for school (like work-study programs and educational loans), graduation rates, loan default rates, average student loan amounts and your estimated monthly loan payment. Having a Shopping Sheet for each school of interest can help you and your family make an informed decision about the best fit for your budget.
How much to borrow
In “The Financial Aid Handbook: Getting the Education You Want for the Price You Can Afford,” authors Carol Stack and Ruth Vedvik recommend borrowing $8,000 or less per year. This way, when you graduate with a four-year degree, the amount borrowed is $32,000 or less—the average yearly salary a college grad can expect.
Federal student loans are the best way to go if you need to borrow money for school; they include options such as the Perkins loan, Stafford loan and Parent PLUS loan. Also available are private student loans, but they can be riskier and typically have high interest rates.
The benefits of college debt
In general, debt isn’t a good thing to have. But, if you want to go to college, debt is often a necessity. This irritates college graduate Mari Ellison: “There are so many countries that offer free college tuition because they want people to succeed and don’t want higher education to be a burden. I don’t get why people in the States have to get buried under so much debt in an attempt to get ahead. A lot of the people I went to college with had a hard time finding a job and were screwed when they had to start repaying their student loans; they had no money. A lot of the ones that got jobs worked at, like, supermarkets or department stores for minimum wage. How is this considered ‘getting ahead’?”
While the sour economy and high jobless rates make going to college and getting into debt seem counterintuitive, there are several advantages to going to college and owing money:
Plus, as Ellison points out, “College debt can be a ‘good’ debt. It gives you a simple way to get good credit for the future, like when you want to buy a car or a house. …You have to think of the debt as an investment in your future.”
So, is college debt worth the trouble? The simple answer is yes, but only if you’re focused and determined to get a degree, and are willing to do the work necessary. “It’s smart if it’s enabling you to invest in your future,” said student financial aid expert Mark Kantrowitz in a 2011 interview with National Public Radio.
“There is no question that, on average, a college degree is still a very good investment. The unemployment rate for young adults who have just a high school diploma is more than twice the unemployment rate for those with a (bachelor’s degree),” said Lauren Asher, president of the Institute for College Access & Success, in an interview with Bankrate.com.
To learn more about student loans and all your options, talk to your high school’s college counselor or a financial counselor at the college of your choice, and your parents.
SIDEBAR 1: Paying it off
After you graduate from college, you have a six-month break (or grace period) before you need to start paying off your student loans. Here
are more terms you should know about your debt and loan payments.
SIDEBAR 2 The future of interest rates: What it means for you
When considering the amount of money to borrow for college, don’t forget about interest rates. The fixed interest rate on direct subsidizedloans for undergraduate students between July 2011 and June 2013 is 3.4 percent. If you enroll in college during this time, have a high school diploma or GED, and take out a student loan, you’re in luck. Along with the historically low interest rate, you can also enjoy a six-month grace period without interest accruing after you graduate. After June 2013, you can expect interest rates on loans to rise to 6.8 percent. This means that you could pay an extra $6 to $8 per month when you start paying off your student loans. While this seems like a small amount, you can easily pay up to $800 more if you have a 10-year loan term with a 6.8 percent interest rate.
“... I try and limit spending and work as much as possible during breaks to have something to start paying back debt with. ... I’m definitely keeping certain programs like Teach for America in mind not only because they fit with my interests and later career goals, but because they also help with loan debt and repayment. I’m also looking at different options and playing around with schedules so I could potentially graduate anywhere from a semester to a year early.”
Sydney Nolan, Macalester College, St. Paul, Minn.
“... I am avoiding the fearful future of college debt by earning large academic and journalism scholarships, as well as working on-campus jobs and being an RA in order to cover my housing expenses.”
Hillsdale College, Hillsdale, Mich.
“... Going to a CUNY wasn’t part of my plan, but it was a choice I made to avoid taking out a loan and falling into debt. I was surprised—and very fortunate—to receive a full-tuition scholarship for all four years at Hunter. ... Focusing on my studies and maintaining good grades in high school helped me to earn a merit-based scholarship. ... Continue what you are doing now—focusing in school, participating in extracurricular activities and sports, working hard at your job—because it will pay off in the future. Also, apply to as many scholarships and grants as you can; don’t be intimidated by the criteria they set. You will be surprised at how much you can benefit from doing the work now, even if it seems like a small task.”
Anjelica M. Enaje
Hunter College, New York, N.Y.