With tuition prices consistently outpacing inflation and student loan debt levels hitting new records, the cost of getting a diploma has taken priority when choosing a school, but experts say price shouldn’t be the sole consideration.
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In fact, the question of how to pay for college is actually the wrong place for students and families to start when evaluating schools, says Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities.
“The cost of financing is really the tail wagging the dog when you think about the importance of the original decision,” Nassirian says. “Families and students could probably do a better job thinking harder about the original decision of where to go to school before you even get to the question of financing, and doing a more careful cost-benefit analysis on the front end.”
The Obama Administration gathered college and university earlier this month to talk about ways to make college more affordable as total student debt levels creep past $1 trillion and have many students wondering if the cost of a diploma is worth it as job prospects remain weak.
Betsy Mayotte, director of regulatory compliance for the nonprofit group American Student Assistance, advises students find alumni’s average student loan debt level, the graduation rate, job placement prospects and the net price versus sticker price to identify colleges that give the “best bang for the buck.”
Mayotte also recommends students aim to borrow no more than the average starting salary in their chosen professional field.
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“Families should consider the average starting salary of the career they are pursuing and do a ‘mock’ budget based on that salary, so if they do have to take out student loans they know how much they can manage.”
But despite the heavy financial load, studies continue to show college graduates have a higher earnings potential, and experts say borrowers have plenty of affordable options available, if they know where to look.
Mayotte advises students should use a variety of approaches to fund college, which can include
529-plans, grants and scholarships, federal student loans, private student loans and payment plans through the school. And she suggests students ask potential schools about their financing options and research their loan options to make sure they are finding the best lending terms and rates.
Nassirian says federal loans make up the majority of the student lending market since they “carry important safeguards like deferment, discharge and income-based repayment” – benefits that he says tend to be impossible for private financiers to meet.
Nevertheless, private loans - which represent about 15% of total student debt outstanding, according to a Federal Reserve report– can also be right for some students, Persis Yu, a staff attorney with the National Consumer Law Center, warns students read the lending terms carefully and note any variable interest rates.
“Rates are low now, but if it is a long term loan, that amount will go up. Also, students should know that the repayment options are not the same as federal loans. They should find out if the lender has flexible repayment options and what those options look like.”
According to Finaid.org, applying for a private student loan with a cosigner, even if the borrower can qualify solo, could result in a lower rate. That’s because lenders may look at the cosigned loan and consider it not as risky – plus, the interest rates and fees usually will be based on whoever has the higher credit score.
“While I strongly encourage families to stick to the federal programs if they must borrow, there are occasions where private loans must be used to fill funding gaps,” Mayotte says. “Families should start by asking the school if there are lenders they can recommend as a jumping off point but then absolutely must do their own research into the terms of the loans.”