Student Loan Insights from the Center for American Progress

Make Informed Decisions When Selecting A College

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Student loan debt is a hot topic in the media these days. The President recently enacted some changes to student loan payment terms, congressional representatives are concerned about the high amount of outstanding debt, and student borrowers sometimes find themselves dealing with higher monthly payments than what they are earning. Those who have already taken on the debt often listen intently to media reports to learn how any potential changes might affect them.

But students in high school and their parents should also pay attention so they can be better informed when considering options for college financing.

Smart financial moves now could help avoid substantial financial hardship down the road. The Center for American Progress (CAP) is a public policy research and advocacy organization which focuses on various issues that can positively or negatively affect the lives of Americans. It often conducts research studies which help to shed light on these topics. One area of concern for the CAP is student loans. Here are some of their findings which might be of interest to potential student loan borrowers:

  • Think Twice Before Dropping Out: If you are going to start college and need to borrow money to do so, make sure you plan on completing your classes and getting a degree. Some of the problems in student loans can be traced back to students who dropped out of school before graduation. When comparing potential earnings between a college dropout with $10,000 of student loans and a college graduate with $20,000 in loans, the graduate is more likely to be able to find a job with a salary that is high enough to repay the loans.
  • Students are Not Comparing Costs to Earnings Power: Students often take on large amounts of student loans without looking at their realistic career earning possibilities. Some career choices simply pay less, regardless of the school attended, so students need to be careful about how much debt they incur for low-salary career tracks. A Master’s Degree in Literature is a lofty goal, but it might be hard finding employment to cover $60,000 in undergrad and grad school loans. Try to look for lower-cost schools, higher-paying careers, or go to grad school part-time while earning money to cover some of the costs.
  • Look at the Type of College: Many students, especially graduate students, are choosing to attend pricey, for-profit colleges. While this can be a more flexible route to obtaining a degree, the costs can sometimes be pretty high. These colleges usually do not have the endowments or capabilities of providing larger amounts of financial aid, so their students are more likely to rely on student loans. If the student fails to graduate from a non-profit school, the problem is exacerbated even more. Examples of schools found by CAP to have high degrees of student borrowing include Walden University, Nova Southeastern University, University of Phoenix, Grand Canyon University, and Kaplan University. Their costs are comparable to schools such as New York University, Georgetown and Columbia.

The rule of thumb is that you should only borrow a total over four years of what your estimated annual salary will be once you graduate. Even though the government does allow more substantial borrowing for advanced students, graduate school should not add unreasonably to your borrowing, without an associated rise in earnings power.

The lessons for upcoming college students are clear. Going into student loan debt with a clear idea of the pros and cons is probably the best education a student receives.