FIRST PERSON: A debt-free degree
GAINESVILLE, Ga. (BP) -- Just a few years ago, I sat in the University of Georgia football stadium as my son Todd walked across the stage to receive his college degree. As the ceremony ended with the traditional toss of the graduation caps, my wife Anne and I also were celebrating that Todd was beginning his new life with no student loan debt.
As the head of an organization that helps people get out of debt and develop financial skills for lifelong success, I could not help wondering the number of those students launching their careers anchored to debt. Turns out, quite a few.
An estimated two-thirds of the class of 2010 has student debt, according to The Student Debt Project, and the debt level is increasing each year.
During the 2007-08 school year, 39 percent of college students borrowed money for school, up from 34 percent four years earlier, according to the U.S. Department of Education's National Center for Education Statistics. The numbers include private, federal and Parent PLUS loans. At the same time more students, 35 percent compared to 32 percent, borrowed Federal Stafford loans, the center reported. The Federal Reserve Bank of New York indicates student debt has surpassed not only total credit card balances, but also total car loan balances.
It gets worse.
Graduates left college in 2010 burdened by an average of more than $25,000 in debt, The Student Debt Project reported. Total college loan debt in this very tight market is nearly $1 trillion.
Ironically, the willingness to borrow becomes an incentive for schools to disregard cost-cutting measures. While the economy has sputtered along with 1 percent to 3 percent growth, the cost of a four-year public college education has gone up 25 percent over the last three years. An emotional blackmail of sorts is taking place, in which colleges raise their prices disproportionate to market events, holding the hope of the American dream over the heads of increasingly desperate teenagers and their parents.
I recently received an email solicitation from an ambitious high school senior asking for donations to sponsor her to the elite private school of her dreams. She was accepted based on her academic and leadership abilities but faced a four-year college cost of $165,000. These numbers look more like a mortgage bill to me.
Most disturbing is the government recently proposed a number of policy changes that will continue to fuel the bubble. The Obama administration has advocated moving more and more of the underwriting for these debts to the public sector, i.e. the taxpayer, while modifying the terms for repayment, shortening the time required for loan forgiveness and seeking to adjust interest rates irrespective of market forces. All of these measures would help current borrowers but also encourage borrowing as an expected practice.
It's time to discuss the better solution: earning a college degree without debt. Not only is it possible, it is a prudent decision that parents, students and educators should champion.
Begin by evaluating students' gifts and skills to direct them to a profitable field of study. Gone should be the days of changing majors midstream or graduating with an unmarketable degree.
Rather than only preparing for the SAT or ACT, students should pursue personal evaluations to determine what kinds of work could inspire them for a lifetime. A suggested tool is Crown's Career Direct, an extensive personal assessment that discloses God-given skills and interests. For some, postponing college, getting a job and carefully choosing a major would be time well spent.
But for those ready to begin a college career, here are some steps to consider:
-- Attend a community college for the first two years while living at home. It dramatically lowers the cost of a college education while allowing students to graduate from their chosen schools.
-- Treat high school as the place to earn the grades that will garner scholarships and grants. High school is the highest paying job for anyone age 14-18; financial rewards can surpass $100,000.
-- Take as many advanced placement classes as possible in high school. Earning college credits there saves money.
-- Attend community college while in high school to earn credits and avoid freshman basic courses.
-- Attend an affordable undergraduate institution, saving money for a master's degree.
-- Participate in a 529 plan, if available, for in-state institution.
-- Open a Coverdell Educational Savings Account to save for college. Have relatives contribute to it as birthday and Christmas gifts.
-- Participate in U-Promise, a program which uses consumer spending to generate money for college.
-- Put a teenager's Web browsing skills to good use looking for scholarships off the beaten path. Many big box stores like Walmart and Target offer a large number of small, general scholarships, $500 to $1,000 each, for local children. Every little bit helps.
-- Get a part-time job. A student should be able to work at least five to 10 hours a week. Studies prove that students with jobs perform better in class.
-- Consider the military. Reserve and active military students can earn money for education.
-- Play for cash. Sports scholarships have long been a path to college for talented athletes.
Choosing debt should be done with a calculator and a good understanding of marketing your skills. In general, only 5 percent of after-tax income should go to debt repayment. When student debt devours more than 8 percent of available income, parents can expect a knock on the door, as their offspring return to the nest.
No student should come home from college ignorant of the high cost of debt as a drain on their lives for years to come. For parents and students considering their options, understanding debt -- and avoiding it -- should be part of College Prep 101.
Chuck Bentley is CEO of Crown Financial Ministries. The S.A.L.T. Plan, How to Prepare for an Economic Crisis of Biblical Proportions, is his latest book. Get Chuck's free weekly e-newsletter, "Handwriting on the Wall," at Crown.org/handwriting or by calling 1-800-722-1976.