By Michael A. MacDowell — President, Misericordia University
(Editor’s note: Misericordia University President Michael A. MacDowell has studied and written about the rising cost of higher education for a number of years. He recently wrote two articles that address managing student loan debt and the efficient distribution of student financial aid. President MacDowell writes about managing student loan debt in Part I below.)
About 7.4 million college students and their families received a financial reprieve for at least one more year when U.S. Senate leaders reached a compromise recently to freeze student loan rates at 3.4 percent for one additional year instead of letting it balloon to 6.8 percent effective July 1. While student loan rates are important, there are many other ways collegians and their families can make a college degree less expensive. Several recent stories on MSN and Fox Business News have offered some excellent “don’ts” which are summarized below.
The key to not becoming debt-ridden upon graduation is to keep student loans at a manageable level. Federal student loans are the most affordable because of the low, fixed rates they provide, but obtaining them is dependent upon the credit rating of the family
and/or student. It is important to optimize your credit rating before applying for a loan and to make certain the family member(s) with the best credit history obtains a loan or industry cosigner.
Even before you consider student loans, however, it is important to first estimate starting salaries in your chosen profession and the probability of finding employment in your field of study so you will know if the loan can be paid off in a reasonable amount
of time upon graduation. The Bureau of Labor Statistics, a variety of other organizations and high school guidance departments should have information about starting salaries and employment opportunities in various career fields. For instance, college graduates
who major in the health sciences, biosciences, engineering and related fields will initially have a higher probability of finding a good-paying job than students majoring in the liberal arts. Liberal arts students, though, tend to do well in the job market in the long run because the skills they derive from their college education are infinitely applicable to a variety of careers.
To save money and to incur less debt as a college student, collegians and their families should also follow these tips:
— Parents of students should read the fine print on all student loan documents to determine the deferment provisions. For instance, many loans can be forgiven in part or entirely if certain careers are pursued upon graduation. However, according to Jane Dessoye, executive director of Enrollment Management at Misericordia University, you must make sure that you are aware of the provisions of forgiveness.
— Many students build up significant debt to cover tuition as well as credit card and related debt. They live like they have a good-paying, full-time job when they are a student and then, ironically, they are then forced to live like a student when they get their first job. There’s plenty of time to spend money after graduation; wait until then.
— Don’t borrow too much. Be prudent. Consider part-time work either on- or off-campus. It is interesting that students who work part-time actually do better academically than students who do not work at all. A good student manages his or her time well and can work part-time and go to school. Parenthetically, time management is one of the best life skills anyone can build while in college.
— Try to pay off some of the debt while you are in still in school. Many students set aside a portion of their part-time job income to pay down debt. It is difficult to give up a spring break trip, but doing so and using those funds to pay down debt and using the time to work while others are in Florida will help considerably. The earlier you begin to pay down the debt the less the compound interest you will incur.
— Graduate on time. Believe it or not, the statistics on on-time graduation provided by the federal government for a four-year college degree actually measures degree completion in six years. Large state institutions, oftentimes, fill the classes students need for graduation early. Lack of advising and other services to students at these institutions make for a longer college experience. While it may cost more each year to attend a private school, the cost of an additional one or two years in a state school, coupled with the salary forgone by entering the labor force, sometimes makes private schools less expensive in the long run.
— Don’t change majors. Think carefully about a major before making a decision. Don’t start taking courses in a specific major as a freshman or first-semester sophomore. Rather, finish your core requirements and/or general education requirements first. These courses transfer much easier if you choose to do so, and you won’t waste semesters or years if you change majors or schools down the road.
— Don’t change schools. Transferring usually adds at least a semester, if not a year, to your college time. And don’t necessarily be swayed by the idea of going to a community college to save money for two years and then transferring. Unless that community college has a close, long-lived cooperative articulation agreement with the four-year institution to which you intend to transfer, you may lose a large number of credits and stay in school much longer, thereby spending more on your college education in the long run.
Above all, remember that a college education, if thoughtfully undertaken, is worth the investment. The annual average earnings gap between college graduates with bachelor’s degrees and their peers who have high school diplomas stands at $22,000. As it stands today, the average debt owed by a student upon graduation from college is about $19,500. In other words, the additional income you will earn in one year by having a college degree can pay almost all of the debt you incurred to obtain that education. College is indeed one of the best investments you can make.
Michael A. MacDowell is president of Misericordia University in Dallas, Pa., where he occasionally teaches economics.