Straight Talk About Student Loans

Going to college these days can be an uneasy, expensive prospect.

According to Nellie Mae, an organization which provides student loan programs, undergraduate student loan debt has increased significantly over the past ten years. The average undergraduate debt is $18,900, up 66 percent from the $11,400 average in 1997. The median undergraduate debt rose 74 percent to $16,500 from $9,500. One in five bankruptcy filings are made by college graduates who have been overwhelmed by the debt they've accumulated and see no other way out.

Making the situation worse, Congress recently passed the largest cut ever made to the student loan programs. Twelve billion dollars is to be taken from federal financial aid programs over the next five years. Undergraduates can borrow slightly more money from the government, but the interest rate to pay back the loans has increased to 6.8 percent fixed, even if the national rate drops lower.

According to Day and Neuberger, college students in past years were able to obtain financial aid in the form of 70 percent grants and 30 percent loans. Now, however, those numbers have been reversed and students are depending more and more heavily on loans. Current estimates on the college education costs of a baby born in 2005 have been placed at a staggering $250,000. Yet, while costs continue to go up, the college degree is becoming more and more necessary, with bachelor's degrees sometimes not being enough.

Studies show that, on average, those with bachelor's degrees earn about $2.1 million over a lifetime compared to $1.2 million earned average high school graduates. Going into debt might be worthwhile, but there are not guarantees that it will pay off in the long run.

Understanding Federal Student Loans

In the federal loan arena, the two major loan offers are the Stafford and the Perkins. With these, students are given a period of time after graduation to find a job before repayments become due. The Stafford loan offers a couple of options. You can begin paying back the loan on a schedule lasting up to ten years, with the payments gradually increasing, or you can pick a plan which adjusts to the amount of money you earn in the job market.

It's highly encouraged that students look into the scholarships available to them. Most colleges highly value diversity and are looking to increase the diversity of their schools. Encourage the students and prospective students you know to use their heritage to their advantage and research the scholarships offered by the schools they are considering. Some colleges will actually help pay the costs of bringing in students from different areas of the country.

Higher SAT or ACT scores can also mean the difference between no grant, a grant, and an even larger grant. The higher your score, the more money you could be offered. It may be worth it to take entrance exams more than once, if doing so could increase the student's score significantly. The costs of taking the test now could be offset in the future.

It's obvious that all these options take careful planning, research, sacrifice, time, money and knowledge. Getting a child through college can be a fulltime job in itself.

What about other options?

While some recommend preparing students for college as early as when they are in elementary school, such options are not always viable for parents. Also, chances are that if you're reading this article, the time for such preparations has already passed.

One good way to save money is to have your student attend a community college for the first two years. Required credits can be garnered far more cheaply at a community college than at a public or private university, and credits can later be transferred to other schools.

It's important to fill out the FAFSA, short for Free Application for Federal Student Aid, whether you think you can qualify or not. Also, if your student is considering any private schools, it's worth noting that some, due to high tuition fees, may offer grants to students whose parents earn over six figures a year.

College students do better, studies have found, if they work while attending school, but overworking can certainly have its consequences. It's recommended that students work no more than 10-15 hours weekly while school is in session.

Final words

While the college route is helpful to most students in their pursuits, not everyone is benefited by the experience. There have been many extremely successful entrepreneurs who began college and dropped out to pursue their ideas. There is no guaranteed route to success, but because college is almost always helpful in the financial long run, it is normally a good idea.

If you have time to prepare beforehand, it's extremely helpful to set aside money and prepare students academically and otherwise before college. Your efforts can literally pay off when it comes time to submit applications.