Paying for college and student debt

I was surprised to read in yesterday's New York Times that "94% of students who earn a bachelor's degree borrow to pay for higher education." That number is an increase from 45% in 1993, but it includes loans from relatives as well as the federal government and private lenders. I do wonder whether all those loans from relatives are paid back. Also, the Times isn't clear what's included in that 94% figure - the Project on Student Debt, which the Times says is its source, says that two-thirds of college seniors graduated with loans in 2010.

The Times  included a useful interactive graphic that allows the reader to look at debt-at-graduation data by enrollment size, graduation rate, share of graduates with debt, and athletic conference. Here's a screenshot of the 2010 data for all colleges (the browns are private schools, the grays public).

There's some interesting school by school data there as well. For example, even students at schools that do not charge tuition graduate with debt. (For example, 2010 graduates of Cooper Union averaged $10,400 in debt, about the same average debt as that year's Harvard graduates.) I suspect the reasons for the increase in debt is the increase in private loans in the mix of scholarships, work/study grants, and private and federal loans that most people now use to pay for college.

Update: Here's a link to a Derek Thompson column in the Atlantic framing the issue slightly differently: first, that most students graduate with less than $50,000 in debt, and, second, that 50% of 21-year-olds have dropped out of college or off the college track entirely. Take a look.

A few years ago I researched how to pay for college. Here, updated, is what I learned:

1. Make sure you understand the full costs of college
At first look, college costs can seem daunting -- $35,000, or $40,000, or more, per year, for a private college. For four years. But not every school costs that much. State schools often charge far less in tuition and fees, and if your student qualifies for in-state tuition, costs can drop dramatically. According to the College Board, costs come in five distinct components:  tuition and fees, room and board, books and supplies, personal expenses, and travel. The problem is that college web sites report costs differently.

The lesson: make sure you understand all the potential fees for each school your student is considering. Think about possible lab fees, and travel, yours and your student's. Will five members of your family be going to Parents’ Weekend? That will cost a lot more for a New Jersey-based family if the child is in college in Arizona than if the child is in college in Connecticut. Think about how many vacations the school has, and include them in your budgeting. Also think about allowance, and how much your child will need for a social life, laundry, or other interests like off-campus music lessons or culture. What if your child has a car?  Travel costs may decrease, but parking, gas, insurance and service expenses need to be budgeted.

2. Start saving early
According to the US Department of Education, the best time to start planning for college finances is in middle school: 6th, 7th, or 8th grade, or even earlier. Remember, the more you save, the more you will have, as compound interest means your savings will mount rapidly. 529 savings plans allow families to set aside money to pay for college; the income is free from state and local taxes so long as it is used to pay for higher education.

But even if your child is already in high school, it’s not too late to start saving! The College Board suggests that families think of it the way you would plan for buying a house:  the more you save now (for the down payment) the less you’ll need later from current income or borrowing. Take a look at the College Board's "Financial Aid 101" for more detailed information.

3. Understand the different types of Financial Aid
Financial aid, which can take the form of loans, work/study, or scholarships, is an option for every family. According to the College Board, students and their families are expected to contribute to the cost of college to the extent that they can, but if a family is unable to contribute the entire cost, financial aid is available to bridge the gap. The government will calculate an “expected family contribution” based on family circumstances, and assume that families will meet their share through a combination of savings, current income, and borrowing. A college may also calculate an expected family contribution using its own--different--methods. The expected family contributions takes account of savings, salaries, housing, and other children who are in college or secondary school.  

Much financial aid comes from the Federal government, usually in the form of low-cost loans.  The College Board says “Students apply for . . .  all federal, state, and institutional financial aid programs (except scholarships) by completing the Free Application for Federal Student Aid (FAFSA).”  You can complete the form online at  The application process is designed to be simple, so that families can complete the application easily, based on readily-available documents like their most recent tax returns.  (Be consistent!  The Department of Education will compare the FAFSA application with your tax returns.)  Remember, the system is designed to be easy for parents to complete; you should not need to pay for assistance with this application.

Financial aid can also take the form of grants. Many colleges will provide merit scholarships that cover some or all of a student’s tuition. The advantage of these grants is that, unlike loans, they do not have to be repaid. For more information about different types of aid, look at the Federal Government's Financial Aid Resource Publications, available here.

Once the student is admitted, take a hard look at the financial package; make sure you understand how much is a grant, and how much is a loan. The College Board web site quotes Mariko Gomez, Director, Student Financial Aid, Southwest Texas State University, who says, "When comparing aid offers,  look at both quantity and quality. Figure out quantity by adding up how much each college is giving you and what you must pay. Figure out quality by comparing how much gift aid to the amount of loan and job." American Student Assistance, a non-profit organization, has good advice here, as well as a form you can use to compare awards that offer different combinations of awards.


In addition to merit aid the college provides, your students might be eligible for one or more privately available scholarships. Scholarships, of course, do not have to be repaid. But that means it’s all the more important to be honest and straightforward in the application. Don’t apply, or allow your student to apply, unless he or she is truly qualified. Find out about any scholarships your state offers – most states do. Check the membership organizations and employers of parents and of your student, if she has one. Often colleges or universities provide financial aid to the children of their employees. Then think of the national awards, like ROTC or the National Merit Scholarship. Remember, a private scholarship might reduce your financial aid package.

Use a free service to help you search.  Some free scholarship search services are :Scholarship Search --'s scholarship search tool, and

Be cautious!  If you have to pay for information, or are asked to pay to apply for or obtain a scholarship, it’s probably a scam, so be wary.  It should cost NOTHING to apply for federal – or any – student aid.

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