The College Application Crunch: Keep Borrowing to a Minimum

While many families are in full holiday-preparation mode, those with high school seniors are in the final frenzy to complete college applications before the winter break. But there's something they must weigh seriously if they want to get real value out of that four-year investment.


It's borrowing — specifically, minimizing student loans. According to a new report from the Center for College Affordability and Productivity, more than 317,000 college graduates were working as waiters and waitresses in 2008, a figure that has tripled since 1992. Federal data "clearly shows that, with increasing frequency, college graduates took blue collar, retail and other employment not requiring a collegiate educational background," the report says. Because the payoff isn't guaranteed, families need to think carefully about the cost of the school, and avoiding debt in pursuit of a higher degree.



I recently profiled a student who graduated from Northeastern University with a bachelor’s in sociology and $200,000 in student loan debt. Her loan payments rise to $1,600 a month next year. Although red ink that high is rare –- the average student borrower graduates with $24,000 — student loan debt has ballooned: It grew roughly four-fold in the last decade to $833 billion as of June — surpassing outstanding credit-card debt for the first time.



Overborrowing for college can ruin other life plans, because borrowers cannot escape the debt, even if they file for bankruptcy. The monthly payments will eat up income that might otherwise be used to buy a car, travel, and save for a home, wedding, retirement and college for children. If borrowers default, the lender may garnish their wages.



Here are a few rules of thumb for would-be borrowers:



-Start saving now in a 529 college savings plan, even if your child is just a few years away from college. Every $1 borrowed in student loans will cost about $2 on average by the time it's paid back.



-Maximize scholarships and grants first, and then tap federal loans. Experts say families should borrow no more than the current direct student loan maximum of $27,000 over four years. Families who have to borrow from private lenders to fill the gap should consider a cheaper alternative, such as two years of community college, living at home and commuting to school or a state institution over a private one.



-Beware of schools that offer a fabulous financial aid package that must be renewed each year. Chances are it may not be as generous later on. And the Byzantine rules of financial aid will penalize families who look to fund the shortfall in common-sense ways, such as having a child or parent work more hours. In other words, a state school that costs $15,000 a year and offers no financial aid may be a better deal than a private college that costs $50,000 and offers a $35,000 discount that must be renewed each year.



-Do not borrow more for your entire education than your expected starting salary. Just keep in mind that if you use this rule of thumb and switch from, say, an engineering or accounting major to one not as potentially lucrative, like humanities or social work, slash your borrowing accordingly and transfer to a cheaper school. Alternatively, take a year off to work full-time and earn the tuition money.



For more tips on avoiding higher education debt, see this story and check out the new book "Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships or Mooching Off My Parents," by Zac Bissonnette, a senior at the University of Massachusetts. It’s an eye-opening guide to understanding the real cost of borrowing.


Were you able to earn a bachelor's on a budget? How did you avoid student loan debt?