They’re everywhere you turn: horror stories about student debt. Graduates in their 20s and 30s — even their 40s — buried under loan payments, unable to buy a house or start saving for retirement. According to a survey by Citizens Bank, 36 percent of millennial graduates said they would not have gone to college if they had known how much it would cost.

The class of 2016 has an average of about $37,000 in student loan debt, up 6 percent from last year, according to a new analysis by Mark Kantrowitz, who publishes a website on financial aid issues. But for most of us, going to college — and financing it in part with loans — is a necessity. So before you take out this long-term obligation, here are some things to think about:


First, should you even go to college now? College is an investment; be sure to make a financially sound decision. Don’t assume you have to start immediately. According to Gallup, 41 percent of graduates are employed in jobs that don’t require a college degree. Four years of experience can be better than four years of college if you know how to find relevant jobs and work your way up. Saving money first and then paying for college, instead of taking out loans, will save tons in interest payments.

What degree you’re getting matters. A degree in art or music is hardly going to help you earn more money or even increase the chances of you succeeding in the field; a degree in computer science is worth a lot more. A report by Georgetown University’s Center on Education and the Workforce looked at 171 different majors and concluded that engineering and mathematics can result in as much as a 300 percent salary difference over the lowest-paying majors, which include visual and performing arts, social work, counseling and psychology, and theology. If you think you want a “fluffier” degree, it might be better to work for a few years first, save some money, and make sure. Also, take a look at the jobs you want to get and check whether they require a degree in whatever it is you’re getting a degree in.


Which school you go to matters. A very expensive private school like Stanford or Harvard might be worth the $60,000 to $65,000 in tuition, fees, room, and board it will cost this fall. But other costly schools probably are not. Research how much bang for your buck you’ll be getting at the school of your choice. According to Forbes, public universities on the West Coast that are science, technology, engineering, and mathematics-oriented generally have the best value.

If you can, go to a public school. At every tier, there are amazing public university options that compete with private schools. The University of California-Berkeley (my alma, full disclosure), for example, has been ranked in the Times Higher Education World Reputation Rankings Elite 6 repeatedly, after Harvard, MIT, Stanford, Cambridge, and Oxford. It is ahead of schools with traditionally more prestigious names like Princeton, Yale, Cornell, Brown, and New York University, some of which are also below the University of California-Los Angeles. If you can attend a public community college and then transfer to a four-year university, that is also a great way to make college more affordable, while also giving you the time to take a variety of classes and find out what you want to major in without spending a ton of tuition first. Try to choose universities in cheaper locations, where you’re also not spending a lot on rent and food.


Another great option is going to a foreign school. While it may be good to come back to the United States for a master’s degree, depending on where you want a career and what your career is, a bachelor’s degree in Canada or Europe is a great way to get a cheap, good quality education and become more interesting and marketable to jobs, especially if you become fluent in a foreign language. According to Albert Saiz, an MIT economist, learning German can translate into earning $128,000 more over your career.

If you’ve decided to go to college, and it’s not free, now’s the time to calculate student debt.

Use the Federal Student Aid Repayment Calculator, before taking a loan. Don’t factor in your income, assume you’ll qualify for loan forgiveness, or think about employers helping you pay. Assume you’re going to pay it off and assume you’re going to have one of the lowest paying jobs you’re qualified for. Can you still get by? Look at the 10-year repayment amount and the extended repayment options. Assume your monthly student loan payments are going to be 10 percent of gross monthly income or less. If you expect other debts, like rent and car payments, the total should not exceed 33 percent of your expected future income. Question whether you want to spend most of your 20s and 30s paying off these loans. If your loan is going to take more than 10 years to pay off, it’s too much. If it’s more than your annual starting salary, it’s too much.


There are no exceptions for Harvard or Yale. If you don’t actually expect to earn much more simply because of the brand name, then you shouldn’t pay more for the education.

Choose federal loans, if at all possible. Never rack up credit card debt or take out a ton of private loans at the same time. See if you can get subsidized loans, like subsidized Stafford loans, which don’t accrue interest while the student is in school.

See if your parents or other family members will chip in more. While they should not eat into their retirement savings and while they need to invest in their retirement first, any extra cash that parents can spend towards children’s education should be invested in it.

Apply for scholarships. Don’t assume you won’t qualify. Use scholarships.com or fastweb.com to win as many $300 to $500 awards as possible, rather than focusing on the big-ticket or prestigious scholarships.

Look into graduating faster and working part time, while in college. Don’t eat out a lot, sell back your books, and try to cut costs in any way possible to avoid taking out the loan in the first place.


A note to parents: Think carefully before paying. Greg McBride, senior vice president and chief financial analyst at Bankrate, a financial research site, says that student loans are one of the best forms of debt, because they can have low, fixed interest rates. He believes that parents must focus on retirement savings first. Students will have better tax rates if they’re paying back interest, they have more loan-forgiveness options, and they should learn responsibility if they’re going to college.

Sometimes parents borrow federal PLUS loans for their kid’s education, but be aware that students might not pay them back. If you are a parent and you do take out a loan, make sure your debt payments also don’t exceed 33 percent of your gross pay and that you have enough pre-retirement years to pay it back.

Isvari Mohan be reached at voice@isvari.com. Follow her on Twitter @IsvariM.