To Succeed After College, Avoid Taking Out Student Loans

While the economy may be improving, it's still no cakewalk for college grads. Some 80% of America's college students will graduate in just a few weeks without having a job lined up, according to the Bureau of Labor Statistics. That's why a new report that shows 17% of the graduates who received bachelor's degrees in 2007 and 2008 had more than $30,500 in student loans is so worrisome. While the report from The College Board did not have more recent figures, it's likely that the debt loads for today's graduates are no better, and probably even worse.

The study by the non-profit trade group found that students at four-year for-profit programs -- such as the University of Phoenix, which is owned by the Apollo Group (APOL) -- were the worst off, with 53% of graduates having at least $30,500 in debt. Also hurting were college graduates of four-year private schools, with 24% leaving school with that amount.

Graduates of four-year public schools tended to leave in better shape, with only 12% owing more than $30,500 in loans. "The problem is not that all students are borrowing too much," says the College Board study. "Rather it is that it is difficult to accurately predict future earnings, and many young people have a limited understanding of the impact of the obligations they are undertaking. Too many students are borrowing more than they are likely to be able to manage."

Is a Degree Worth $450,000?

Because it represents colleges and universities, The College Board typically doesn't take an anti-debt stance. In fact, the outfit notes in the report that "Borrowing for college is a wise investment for most students." The College Board used to tell students that a college education increased their lifetime earning power by $800,000. Since then, it has quietly revised the figure down to $450,000 to compensate for errors in its analysis.

One thing The College Board's research doesn't address is why student loans can be so tricky. There's no shortage of tales of students who went into default because they owed $80,000 but couldn't get a job after graduation, and saw exploding fees and penalties doom them financially for life.

But even for students with seemingly manageable debt loads, student loan debt can have an immediate and painful effect on your lifestyle. Here are a few points prospective borrowers need to ponder and discuss with family before signing on the dotted line:

• Are you considering grad school? If so, you need to be really, really careful about borrowing anything for undergraduate education in order to preserve that borrowing capacity. A $20,000 debt load might not seem like a lot but according to FinAid.org, 56.4% of graduate and professional degree students borrow an average of $40,297 for grad school. If a student wants to go to grad school directly after college, recognize that the cumulative debt load will at best have a negative impact on lifestyle, and may well be unmanageable. According to a recent survey from the Higher Education Research Institute at UCLA, 42% of college freshmen are hoping to earn a master's degree. According to Experience, Inc., 23% of graduates put off continuing education because of student loans.

• Do you want to have a job you like? A 2008 Experience Inc. survey of recent college graduates found that "40% took a job offer that offered higher pay, but less career satisfaction, in order to help pay off their student loans" and that "47% say that their student loans impacted their decision to pursue a particular career." If students have their hearts set on a particularly expensive school, they need to ask themselves: "Is four years of College X instead of four years of College Y going to be so much fun that it's worth embarking on a career that doesn't interest me?"

• Do you want to buy a house and/or start a family? A 2002 Nellie Mae study found that 44% of recent graduates put off buying a home because of student loan obligations -- 14% had put off marriage because of the debt, and 21% put off having children because of loans.

The whole point of going to college is to open yourself to new opportunities. For many recent graduates, student loans close at least as many doors as college opens, and that's a tragedy.

It's always a good idea for students to explore less expensive colleges. And parents -- and their children -- may want to consider cutting back on the non-essentials so they can pay cash for college.

According to The College Board, tuition and fees at the average public four-year college run about $7,020 per year. And most families will receive a tax credit of $2,500 on the first $4,000 they spend on college each year, bringing the total cost down to $4,520 (before room and board). That's $87 per week.

Students may be able to avoid the perils of student loan debt if their families can reduce spending for a few years, plowing that money into tuition. Students can also work part-time during the school year and full-time during the summer to help close the gap.

I'm not saying that this is easy. But looking over all the data about student loan debt -- and reading about the lives that were damaged by it -- I can tell you this: finding an alternative to student loans is worth it.