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College Loans Still a Good Option

University Business, Jan 2007

RECENTLY I MET A FAMILY whose daughter was looking at Rhodes College. The family income was slightly above $20,000. Federal and state funding didn't provide the assistance necessary for the daughter to enroll. Even after adding a substantial commitment from the college to the financial aid package, there was a large financial gap.

Rather than borrowing too much from alternative sources, I advised the student to consider other college options. We didn't want to lose a qualified applicant, but neither did we want her to be overly stressed with debt. The family appreciated my counseling, and the student enrolled elsewhere. She will be successful.

I tell this story to convince readers that financial aid officers are not all snake-oil salesmen. Recent student loan scandals may have given prospective college students and their families the idea that all is rotten in financial aid offices. And it is true that some have exercised less than great judgment in dealing with loan providers. But college financial aid officers are by and large honest people trying to help families afford college and increase access to higher education.

More American kids should be going to college today, especially those from low-income families, and we are trying to help as many as we can to achieve their dreams because it's their ticket to a brighter future. The cost of college does mean that many families will have to go into some debt in order to pay for higher education.

But let me remind readers why college is a better investment than just about anything else, including your house.

Cars, boats, and furniture are financed over time, and we know that as soon as you drive or sail away or plop in that recliner, these consumer goods lose a hefty portion of their value. And when you borrow to take a vacation, the loan payments live on long after you've returned from the beach and are back at work. On the other hand, homes and college degrees appreciate in value as years go by. Even home equity loans to finance improvements are sound investments because they usually bring a higher return on resale.

So if going into debt to purchase or upgrade a house is seen as a prudent investment, why do so many families hesitate to incur debt to finance a college education? There is plenty of evidence that the payback on a college degree may outstrip even the returns realized from investing in real estate.

What many don't realize is that college degrees provide more than simply personal gain. Society benefits too. Voting rates of those with bachelor's degrees were about 30 percent higher than those with just high school diplomas in the 2000 election. College graduates expand the tax revenues of our cities and states, and the government spends $2,700 less per year on social programs for those with degrees.

Here's the bottom line for those worried about financing a college education: Forget the sticker prices you read about. The national median loan indebtedness of four-year college graduates is approximately $20,000, about the price of a new car. At 6.8 percent interest, the current Stafford Loan interest rate, the monthly payment over 10 years is slightly more than $230. Contrast that with the U.S. median noneducation monthly debt payment of $650, which includes credit card and automobile loans.

Which kind of debt would you choose?

There are scandals in every industry, and the danger we run is that the actions of a few will cast a shadow on the value of the industry itself. All financial aid professionals are disappointed in the poor decisions that some have made. College is too important not to invest in it, and the financial aid officer can help families make the best investment of their lifetimes.

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