One of my favorite themes in this column over the years has been
that choosing a college is an economic decision as well as an
academic one. I'm a great believer in a liberal-arts education, but
as I wrote recently, "Parents aren't obliged to pay for four years
of football weekends, frat parties and beer (see
Do the College Math
)." Lately, lots of others are jumping on the bandwagon. It started
rolling when the recession forced many cash-strapped families to
cut back on college plans, then picked up steam recently when Mark
Kantrowitz, publisher of FinAid.org and FastWeb.com, calculated
that total student-loan debt exceeds revolving credit (mostly
credit-card debt).
Is it worth it to pay $200,000 for a liberal-arts education,
especially if it means taking out loans? One of my twentysomething
Kiplinger colleagues answers bluntly: "If had realized how much
debt I was getting into, I would have gone to my state school
instead of an expensive private college."
Trouble is, many 18-year-olds are dazzled by the prospect of
football weekends, frat parties and beer and don't realize what
they're getting into. And often parents, wanting the best for their
kids, are reluctant to say no. As important as education is in
today's world, families need to find more-affordable ways to pay
for it. Here's my seven-point guide to avoiding the student-debt
trap.
Save as much as you can.
It's never too late to start, especially if you live in a state
that gives you an income-tax break for contributions to
state-sponsored 529 plans (see
Get a Break on College Costs
). Plus, money withdrawn from 529 accounts and used to pay for
qualified college expenses is tax-free.
Don't let the total cost of college discourage you. If it seems
intimidating, aim for a more manageable goal -- such as saving
enough to pay first-year expenses or one-third of the total cost
(the rest could be covered by a combination of current income, both
yours and your child's, and financial aid). Remember, every dollar
you save is a dollar you won't have to borrow.
Be straight with your kids what you can afford.
Have the "college talk" with your teenagers before they start their
search so that they know what fits into your budget and how much
they'll have to contribute. At a minimum, kids should be expected
to earn their own spending money.
Choose schools strategically.
You're looking for colleges that deliver good value -- a
high-quality education at an affordable price (see our
Best College Values
special report). That might mean a state institution, or it could
mean a pricey private school that offers a generous financial-aid
package. To better their chances for a scholarship, students should
focus on schools at which their GPA or other achievements would
make them a standout. (This really works, by the way. Each of my
three children qualified for a substantial scholarship at a
noteworthy college.)
Think outside the box.
Students can follow the example of one of our top Kiplinger
editors, who started at a lower-cost community college and then
transferred to a four-year school. And more colleges are offering
online classes to keep costs under control. Taking Advanced
Placement classes in high school can slice a year off your child's
education and cut your expenses by 25%. Uncle Sam will help pay the
bill if your child joins the military. You could also take
advantage of the growing number of colleges offering accelerated,
three-year degree programs.
Or here's a radical thought: Your child may be better off
passing up college, at least for a year. Not everyone is ready for
college at 18. It might literally pay if your child takes a year
off to mature, earns some money and figures out what he really
wants to study. Education and training are critical in today's
economy. But rather than spend time and money on a degree from a
four-year institution, it might be more appropriate for some kids
to consider a one- or two-year certificate program from community
college in a field such as health care or engineering.
Borrow smart.
If your family must borrow to pay the bills, stick with
government-sponsored Stafford loans for students and PLUS loans for
parents (or a home-equity line of credit, if you qualify). Current
interest rates on government loans are 6.8% for students (lower if
you're eligible for financial subsidies) and 7.9% for new PLUS
loans (for more information on student loans, go to
StudentLoans.gov
). With that combination, you shouldn't have to resort to
more-expensive private loans. Remember, though, that a subsidized
student loan can be a two-edged sword, encouraging kids to borrow
more than they should.
Run the numbers.
Perhaps the most important mathematical exercise your child will
ever have to do -- and the most widely neglected -- is figure out
how much it will cost to pay back his student loans. At FinAid.org,
you can use the Student Loan Advisor calculator to determine the
monthly payment amount based on a future salary.
Let's say your daughter plans to major in accounting, with a
projected starting salary of $47,200. If she wanted to hold the
loan payments to 10% of her monthly income and repay the loans over
ten years, her monthly payment would be $393, assuming a
student-loan interest rate of 6.8%, and her maximum manageable debt
would be $34,200. ( To read about other options for paying off
student loans, see
Digging Out of Student Debt
. Another rule of thumb: Students should try to limit their total
borrowing to no more than their expected starting salary when they
graduate.
Pick a marketable major.
Majors that are most likely to yield an immediate job offer after
college are accounting, business administration, computer science,
engineering and math, according to the National Association of
Colleges and Employers. But students can still major in liberal
arts and make themselves attractive to potential employers by
choosing subjects that are marketable.
As an editor, I always counsel budding journalists who are
majoring in something as general as "mass communications" to add a
minor or a concentration in another subject -- business, health or
computer skills, for instance. As the editor of a personal-finance
magazine, I can attest that our most-attractive job candidates are
those who combine writing ability with knowledge of the subjects we
cover.
And that applies to other fields as well. If your daughter is
majoring in economics, she should take accounting. If she's
studying history or government, she could learn a foreign language.
An English major could take classes in technical writing. Then
she'd have a better shot at landing a well-paying job to help pay
back those college loans.
Follow me on Twitter