Today the front page of my home town newspaper (The Seattle Times) had an article on Graduates drowning in debt from high cost of college. The story presents a few cautionary examples, such as the recent college graduate who was $152,000 in debt from earning his business degree, then goes on to discuss the doubling of average debt at graduation over the past sixteen years, from approximately $10,000 to approximately $20,000.  Seeing this article made me realize how much reading Winning the College Game could help future students avoid both the mistake of extravigant debt and the mistake of being unwilling to take on any debt to invest in a college education.

 Three quick things to think about.  First, the student who was $152,000 in debt made the huge mistake of sticking with a high cost option, and even returned to that option ofter trying lower cost options for a year.  I'm afraid he didn't get much of a business education with his business degree if he can't calculate the value of his education in a way that includes his net cost to attend.  He faced some challenges, including a parent losing a job after he had decided to enroll in the expensive private college where he earned his degree.  Given that change in circumstances, ringing up over $30,000 per year in loans wasn't the wise reaction, but he was emotionally attached to attending one particular college and dug himself into a deep hole that will impact his life for years, maybe decades.

Second, the article suggests that the average debt load of $20,000 at graduation is a problem.  But those of you who read my book carefully know that I don't share that opinion.  If you paid 8% interest, and paid the debt off over 20 years, it would amount to an exta $166 per month.  If having a college degree allows you to earn $0.97 more per hour you'll make that payment and still break even.  If you paid it off in ten years is would be approximately $244 per month, or an extra $1.43 an hour.  You'll probably still be earning more as a result of the opportunities your education provides even after your student loans are paid off, so borrowing $5,000 per year to earn a degree probably makes good economic sense, provided you apply yourself in college and graduate prepared to have a more successful career.

So how do you know the appropriate amount to borrow?  That brings me to my third point.  There isn't a magic number, but if you want to get the best value for your college education you should be net price sensitive.  Apply to several good colleges, apply for financial aid at all of them, and wait until you see what they expect you to pay from family contributions, personal earning and borrowing before you make your choice.  If your first choice college wants you to pay twice as much as your second choice college, ask yourself if the value to you of going to the former is really twice as much as the value of going to the latter.  While you are considering where to go, don't forget that the value you get out of college depends more on what you choose to do during college than the name on the diploma when you're through. Having to work long hours to get through school, or having to rule out options that don't lead to a high paying job right out of college so you can make your payments wo't encourage you to take advantage of all the opportunities college provides.  That doesn't mean you should always choose the school with the lowest net price, but a higher price is a real cost. Be careful and make sure you have some reason to believe paying more will pay off enough to justify the added financial burden.

 [For details of how to calculate net college price, see the article Financial aid 101 or read chapter seven of Winning the College Game]