Is a Degree Worth the Debt?

There is no escaping the fact that college costs are rising. The College Board reports that most students and their families can expect to pay, on average, from $95 to $1,440 more than last year for this year’s tuition and fees, depending on the type of college attended.

Average College Costs for 2007-2008:
Private four year $23,712 (up 6.3 % from last year)
Public four-year $6,185 (up 6.6 %from last year)
Public two-year $2,361 (up 4.2% from last year)

Financing Options

Families are encouraged to seek federally backed loans first, then shop for private loans, based in part on the recommendations they receive from schools. Federally backed loans have certain advantages, including offering fixed interest rates and subsidized rates for students who show financial need. The terms of federal loans can also be better, and can be consolidated more easily.

Unfortunately, more than 50 lenders have stopped making federal or private student loans this year, largely because of the turmoil in the nation’s credit markets that began with the subprime mortgage crisis last summer. Still, the College Board reports that there is more that $130 billion in financial aid available - it’s all a matter of where to look. Options include:

Financial Aid – loans
A college loan works just like any other type of loan and are made by banks, the government and even colleges themselves. You can mix and match various loans to pay for school.

Scholarships
In general, scholarships are awards that do not have to be paid back.

Grants
Grants are monetary awards offered to students that meet certain criteria that do not have to be repaid.

529s
These are special tax savings plans in which money is set aside for college expenses. You deposit the money into the fund, add to it when you can, and the plan grows tax free. These plans can begin at any time as long as the student it’s intended for is under the age of 18. Some states will allow you to use the money for any school you choose, others require that the money be earmarked for one particular institution.

Financing Trends

In August 2008, Sallie Mae and Gallup issued a study of 1,400 undergraduate students and parents entitled, “How America Pays for College”. The study concludes that:

• too few parents and students are focusing on the total cost of college
• not enough are using available college savings tools
• too many are borrowing without considering how they will repay, and
• too many are not completing federal financial aid forms that enable them to access free federal financial aid and low-cost student loans.

A surprising 42% of families did not eliminate any schools based on cost before or during the application process, after admission or after receiving a financial-aid offer. Additionally, 85% of students and 77% of parents said they would rather borrow to pay for college than not be able to go at all.

Planning on College? Then plan on debt.

The American Council on Education reports average student loan debt of $26,119 for public 4-year college and $29,000 for private 4-year college. Graduate students must borrow even more on credit in order to complete their degrees.

According to the Association of American Medical Colleges, 87.6% of graduating medical students carry outstanding loans that total, on average, $139,517. And 75.5% of graduates have debt of at least $100,000. The American Bar Association reports average debt for law school graduates fall between $80,000 - $100,000 depending upon the caliber of institution attended. Ranking of the law school can also play a role in what type of legal position the graduate may obtain, thus influencing future income potential.

Is it worth it?

According to the National Center for Education Statistics, for each year between 1980 and 2005, earnings for young adults increased when education level increased. During the same period, earnings fluctuated among those with at least a bachelor’s degree and decreased among those with less education, thus contributing to the growth in the median income gap.

The 2007 College Board Study, Education Pays, reports that individuals with a bachelor’s degree earn over 60 percent more than those with only a high school diploma. Over a lifetime, the gap in earning potential between a high school diploma and a B.A. is more than $800,000. In other words, whatever sacrifices you make to pay for your college tuition in the short term are more than repaid in the long term since having some college training or a college degree leads to making more money down the road.