Just a few years ago, I sat in the University of Georgia football stadium as my son walked across the on-field stage to receive his college degree. As the ceremony ended with the traditional toss of the graduation caps into the air, my wife and I were also celebrating the fact that he was beginning his new life without any student loan debt.
But as head of an organization that helps people get out of debt and develop financial skills for life-long success, I could not help but wonder how many of those students were launching their careers anchored to debt. It turns out, quite a few of them were.
An estimated two-thirds of college students graduating in 2010 have student debt, reported The Student Debt Project in late 2011. And what they owe is increasing each year.
The U.S. Department of Education’s National Center for Education Statistics released figures in October indicating that all college loan borrowing, including private loans, federal loans, and Parent PLUS loans, increased from 34 percent to 39 percent between 2003–04 and 2007–08, and that Federal Stafford Loan borrowing increased from 32 percent to 35 percent during this period. About that same time, the Federal Reserve Bank of New York indicated that student debt had surpassed not only total credit care balances, but also total car loan balances.
It gets worse.
The graduating class of 2010 left college campuses burdened by an average of more than $25,000 in debt, reported The Student Debt Project. That means more than 37,000,000 college alumni are trying to pay off almost $1 trillion dollars of debt in a very tight job market.
Ironically, the willingness to borrow becomes an incentive for schools to disregard cost-cutting measures. While the economy has sputtered along with 1 to 3 percent growth, over the last three years the cost of education at a four-year public college has gone up 25 percent.
What's taking place is an emotional blackmail of sorts, in which colleges raise their prices far out of line with market events, holding the hope of the American dream over the heads of increasingly desperate teenagers and their parents.
I recently received an e-mail solicitation from an ambitious high school senior asking for donations to sponsor her to the elite private school of her dreams.
She was accepted for her academic and leadership abilities but found that she would need $165,000 to get through the four years ahead before she could toss her cap into the air. These numbers look more like a mortgage to me.
Most disturbing is that the government recently has proposed a number of policy changes that will continue to fuel the bubble.
The Obama administration has advocated moving more and more of the underwriting for these debts to the public sector (i.e., the taxpayer), modifying the terms for repayment and easing the time before the loans can be forgiven and seeking to artificially curb interest rates on the loans. All of these will be helpful to the current borrowers but sends clear signals that borrowing is an acceptable practice for earning a college degree.
It’s time to discuss the better solution: earning a college degree without debt. Not only is it possible, it is a prudent decision that needs to be championed by parents, students and educators.
A good place to begin is by evaluating a student’s gifts and skills to direct them to a field of study that can become a future career. Learning is priceless, but the costs today warrant avoiding the unnecessary expense of a midstream change in majors or simply attending for four years to “get a degree in something.”
For some, postponing college in favor of work experience while making a plan and carefully choosing a field of study would be time well spent.
But for those ready to begin a college career, here are our recommended “12 Steps” to consider:
1. Know yourself. Rather than just take prep-course for the ACT and SAT tests, do some self-evaluation to choose the appropriate course of study. The organization I represent, Crown’s Career Direct, is a personal assessment that can help a student turn their passion into a career.
2. Treat high school as the place to work to earn the grades that will qualify students for scholarships and grants. It is the highest paying “job” for anyone age 14-18. For some, it could mean more than $100,000 of financial rewards.
3. Take as many AP classes as possible while still in high school. The college credits earned there save money later.
4. Take dual or joint enrollment classes while still in high school. These are taught either in your high school or on a college campus. They are graded and count toward your GPA.
5. Turn a teenager’s web browsing skills to good use looking for scholarships off the beaten path. Many big box stores like Wal-Mart and Target offer a large number of small general scholarships for local students, from $500 to $1,000. Every little bit helps.
6. Attend a community college for the first two years while living at home. This decision dramatically lowers the cost of a college education while still allowing the student to earn a diploma from the desired school.
7. Choose an affordable institution for an undergraduate degree, and save money for a master’s degree at the school of your choice.
8. “CLEP” out of some classes. The College Level Examination Program, or CLEP, allows you to test out of certain classes. Study guides are available to help you learn enough material to pass the test.
9. Participate in the U-Promise program.
10. Work part time while in school, during breaks and over the summer. A student should be able to work part time at least to provide spending money while in school. Studies prove that students who work perform better in their classes.
11. Consider the military. By joining a military reserve unit, significant funds can be earned. As active duty military, students can earn GI Bill money for education.
12. Leverage your athletic ability. Sports scholarships have long been a path to college for talented athletes. Turn that God-given talent into a degree than can last a lifetime.
In the end, choosing debt should be done with a calculator and a good understanding of the long -term implications.
In general, for parent or students, only 5 percent of after-tax, spendable income should go to debt repayment. When student debt (or any consumer debt) devours more than 8 percent of available income, financial stress will dramatically increase and may turn the dream degree into a nightmare.
No student should come home from college ignorant of the high cost of debt as a drain on life for years to come. For parents and students considering their options, understanding debt—and avoiding it—should be part of College Prep 101.
Chuck Bentley is CEO of Crown, a non-profit business and personal finance policy and educational organization, and author of "The S.A.L.T. Plan. How to Prepare for an Economic Crisis of Biblical Proportions" and "Root of Riches, What if everything you think about money is wrong?"