Avoid college debt that deflates dreams; plan early

By AMY McCONNELL SCHAARSMITH
Pittsburgh Post-Gazette

The college green is lush and sunny, conjuring daydreams of Walt Whitman and pick-up football. For more than 100 years, the red brick buildings have housed the higher mysteries of calculus, chemistry and Coriolanus.

Your child loves the place.

And the cost after four years? More than your house is worth.

When deciding among colleges, most families should consider cost, and their own financial realities, to make a sensible choice that will make everyone happier in the long run, according to college finance experts. Too many families indulge in unrealistic expectations.

"That's the mistake for families, if they're concerned about financial aid, to give the child the green light to go wherever they want to go and say, 'We'll figure out how to pay for it,' " said Kalman Chany, author of "Paying For College Without Going Broke."

For many years, the prevailing wisdom was that college-bound students should pick a school that was the "right fit" for them and figure out later how to pay for it.

But with the average annual cost of attending a public, in-state four-year college topping $17,000, and the cost of a private college more than twice that, according to the College Board, many experts say the "right fit" should include the right financial aid package.

Ideally, families should begin thinking about college costs in the student's sophomore year, assessing the strength of the student's record to judge how desirable an applicant might be at various schools, Chany said.

A good but not stellar record is likely to tilt financial aid from grants and scholarships to loans at large or highly selective schools, he said. The same record might win a generous aid package from a more modest school that still offers a great education.

Many of the most expensive private colleges, however, offer some of the most generous aid packages, so qualified students should apply for aid and make an informed decision after receiving an award letter, experts say.

"What most families don't realize is that the most aid -- whether it be in grants, scholarships or loans -- goes to those who are savviest about applying for it, not necessarily those who are the neediest," Chany said.

How do you find the right match for your finances? First, experts say, list available resources such as savings accounts, investments dedicated to education costs and any available income. Second, apply for financial aid even if you don't think you qualify.

College financial aid expert Mark Kantrowitz said his analysis of the 2009 National Postsecondary Student Aid Study showed that 2.3 million students would have qualified for a Pell Grant in 2007-08 -- nearly half of them for the full $4,731 given at the time -- but did not fill out the necessary Free Application for Federal Student Aid, known as FAFSA and found at www.fafsa.ed.gov.

Families should evaluate each prospective college's net price, using the net price calculator required for each school's website. The calculators will give a general idea of what the school will cost a particular student.

Students, Kantrowitz said, should compare the total amount of debt they expect to accumulate after four years to their expected starting salary in their first job after graduation.

"The debt at graduation should be less than your annual starting salary -- and, hopefully, a lot less," said Kantrowitz, publisher of the financial aid help site www.FinAid.org.

Unless the student plans to go into a public service field and can expect federal loan forgiveness after 10 years in the field, or has definite prospects of a highly lucrative first job, the student should "under no circumstances graduate with six-figure debt," because the student will never be able to repay it, Kantrowitz said.

"You're pursuing the dream, but because you took out all that debt, you might have to abandon the dream because you'll have to pick the job that pays the best," he said.

And there's really no escape. If a student defaults or declares bankruptcy on a federal loan, the federal government can garnish as much as 15 percent of his wages or Social Security payments and can seize federal and state income tax refunds. In addition, a quarter of the repaid money is diverted to pay for the cost of collection.

Private loan companies must get a court judgment to garnish wages and generally don't sue for loans less than $40,000, Kantrowitz said. But failure to pay them will damage the borrower's credit rating.

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