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Wes Moss: How to avoid the $1,000,000 student loan

So, how much student debt will your kids be stuck with at graduation? Heck, how much are you still carrying? Ten thousand dollars? Thirty thousand? A hundred grand? How about $1 million? True story. I recently met a young couple who are grappling with two student loans that total One. Million. Dollars.

Is it ever smart to take on significant debt to earn an academic credential? Yes. But students and parents need to think like wise investors when making college-related money decisions.

The Million Dollar husband and wife are both in the medical field and already have a combined income in excess of $500,000. Still, it’s going to take them over a decade to pay off their student loans, which puts them in their in their mid-40s before they are free of that burden.

And what if they want to have kids? What if one partner has to stop working or significantly scale back their hours? All of a sudden, the monthly loan payments of more than $10,000 a month begin to look ominous. And suffocating. This is sharp couple and they will likely make this work. But their unusual story illustrates the too common problem of student debt burden.

The class of 2013 college graduates will shoulder student debt averaging $28,000 to $35,200. The average grad-school debt is upwards of $30,000 for a master’s degree and could be upwards of $90,000 for a law, medical or other professional degree. Before making this type of investment ask yourself a couple of questions:

What’s the pay-off from this degree? I’m a big believer that college is more than just learning a trade or earning a degree. It should be a place where young people expand their minds, learn to think critically, make lifelong connections, and begin to master adult social skills and develop the ability to live on their own. That said, it is important to run the cost/benefit numbers when considering where to invest your higher education dollars. If you know what field you want to pursue, try to balance your likely earnings in that profession against the cost of earning the required credentials. It’s probably not a great idea to take on $100,000 in debt at an elite private school if you know you want to be a social worker or National Park ranger.

Why am I really considering this expensive school? Remember that college is a consumer product like any other. There are great ones, good ones and mediocre ones. Some colleges have very strong brands fueled by traditions of excellence and/or current marketing buzz. Try to look beyond all this when you consider where to attend college. The highest student loan debt I see was incurred at private schools with very strong brands. But there are plenty of public colleges and lesser-known private schools that offer comparable qualities of education and campus life for a lot less. Remember this: What you get out of college has little to do with where you go. It’s all about what you put into the experience – both inside and outside the classroom. Guess where Google co-founder Sergey Brin got his undergrad degree? Not Harvard. Not MIT. The University of Maryland.

Choosing a less-elite school might even enhance your college experience by providing more opportunities to shine. Malcolm Gladwell discusses this idea in his new book David and Goliath. He explains that the more elite the institution, the worse students tend to feel about their own academic abilities, which can result in decreased motivation and confidence. At elite schools, every student was the BEST at their high school, which makes for some ferocious competition. Think it over. Is it better for you to finish in the top rank of a good school, or in the middle of the pack at an elite school?

How can I get someone else to pay for this? There are thousands of scholarships available to students at all income levels. Many of these go unused because students don’t know about them or figure they aren’t financially eligible for financial aid.

Help is also available for those who take student loans. One example: is a new company that connects graduates with alumni (from the same alma mater) who are willing and able to help reduce the loan costs by reducing interest rates, sometimes lower than what a bank or subsidized lending institution can do.

The bottom line: Do your research and put some real thought into picking a college and figuring out how to pay for it. This is one homework assignment that will pay off big time.

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