Education's Price Tag

Aside from the typical grind of cramming for finals, students looking to graduate in December or May have a bit more research hanging over their heads.

A recent study released by Nellie Mae, the nation's largest nonprofit provider of student loans, reported that "the average debt for student borrowers who went to public four-year colleges was $13,000, compared with $17,500 for those who went to private colleges."

Furthermore, students pursuing advanced degrees through graduate schools were said to chalk up a debt average of $24,500, while professional school grads faced a lofty $48,500 burden.

Before taking out any sort of loan, students need to become familiar with the market and its language. According to Nellie May's Debt Management EDvisor program, there are three fundamental points that loan-seekers should acquaint themselves with: cost of attendance (COA), the loan limits of a loan program, and their projected ability to repay the loans.

The cost of attendance is the sum of both direct and indirect costs, meaning both tuition and housing fees, as well as costs for books, supplies, and transportation. It is important to note that the cumulative amount of financial aid received by a student cannot exceed their COA.

In terms of loan limits, students are encouraged to utilize the full potential of their federal loans before resorting to private loan programs. The Federal Stafford loan has two variations: subsidized and unsubsidized. The difference being that with subsidized loans, the government pays the interest while the student is still in school, whereas with the unsubsidized loan, the student is responsible for all interest incurred from the initiation of the awarded loan.

The annual limit of the Federal Stafford Loans varies depending on the grade-level status of the student. For instance, the current annual limit of both Stafford loans for a college freshman is $2,625, for a sophomore is $3,500, or for a junior and beyond is $5,500.

Perhaps one of the biggest struggles for collegiate scholars lies in determining how much money to borrow in the form of loans. Nellie Mae instructs students to base this calculation on their anticipated starting salary, which can be estimated through averages of starting salaries for various majors/disciplines.

JobWeb, for example, reported that the average starting salary in 2001 for accounting majors was $39,720, English: $31,014, computer science: $52,473, and psychology: $29,952.

This introduces a secondary dilemma amongst many college students however, since many remain undeclared/undecided on which major they want to pursue. According to the Higher Education Research Institute, 8.4 percent of college freshman in 2002 had not decided on a major. Therefore students are entering the collegiate realm already shouldering the burden of debt without developing a solid repayment plan based on their aspirations and goals.

Current research suggests that college grads looking to repay their loans should not budget more than 8 percent of their monthly salary in order to maintain a manageable financial plan. Likewise, Nellie Mae reports "a good rule of thumb for estimating loan payments is that you will pay approximately $125 per month for every $10,000 borrowed."

In order to minimize the total amount borrowed, students should attempt to make smart financial decisions through reduced spending and informed buying. Three tools that Nellie Mae suggests using to reduce borrowing are free scholarship search databases, like www.wiredscholar.com and www.fastweb.com, employer assistance, and employment options, such as the Federal College Work-Study program.

While students usually remain enrolled for at least four years, it is easy to lose track of money borrowed and lenders borrowed from. Keeping a loan record of financial aid information is an imperative preparation step for students utilizing aid tools.

Once the research has been completed and the aid type and amount has been applied for and approved, students begin their debt journey, only to end when the last penny has been repayed. Repayment opens a whole new exploration of questions, and answers, which deserve a special focus, to be found in the second segment of this article, titled "Repayment: the ins and outs".

By: Kate Ellis

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