Its the end of July, and many high school grads are getting ready to head off to college. In the 2014-2015 academic year, the average family paid over $24,000 for school according to the Sallie Mae report “How America Pays for College“. Plans for how to pay for college have most likely been laid, and for over half of families sending kids to private four year institutions and 43% of families sending kids to public four year institutions those plans include a student loan. Student loan debt outstanding has climbed nearly 50% since the end of 2010. As of the end of March 2015, $1.3 trillion was outstanding. Of those students with student loan debt, the class of 2015 has an average balance of $35,000. That is enough for an entry level luxury car or a substantial down payment on a house!

College graduates with student loans are less likely to start a business or buy a home according to a study by Brent W. Ambrose of Pennsylvania State University and a separate study by the Federal Reserve Bank of New York. They also tend to delay saving for retirement, opting to pay down debt first. Given the high interest rate on student loans this makes sense, but the result is that those graduates with significant student loan balances live with that set-back for their entire lives.

Interestingly, according to the study by Sallie Mae, those families taking out student loans tended to use the money to reach for a more expensive college experience. Families taking out loans spent a third more on school, and the students were less likely to live at home than those who didn’t take out a loan. Is it worth it? The Brookings Institute recently published a report ranking schools by their value added as measured by alumni earnings. The study used the average earnings of people with degrees in the fields of study offered by the school, the percentage of graduates prepared to work in science, technology, engineering and math (STEM) fields and completion rates, among other criteria, to rank the schools. The conclusion to be drawn from the study is basically that schools specializing in degrees in high paying fields are worth paying up for. If your student is passionate about one of those fields, it may be worthwhile to stretch and borrow so she can attend that school.

However, this isn’t the case for a lot of students. Many students graduate with degrees where the specific institution attended makes little difference in post college earnings, and worse, as many as 30% don’t graduate at all. Yet the loans remain. Student debt is the only debt that cannot be eliminated through bankruptcy. Congress has taken action to make loans more affordable by scaling payments to current earnings, but this doesn’t make the loans go away. The length of time it takes to repay the loan just gets longer, and in some cases the loan gets bigger if the monthly payment is not enough to cover the interest on the loan. It may be possible for your student to get the education he wants without taking out student loans.

1. Public institutions are significantly cheaper than private institutions, especially for upper income families who may have less access to financial aid. Consider attending an in-state public school.
2. Consider staying local. If nothing else eliminating the cost to travel home from school will save a bundle. Living at home will make the most difference though. The average cost of room and board is over $8,000 per year. Over four years that would save you $32,000, almost the average student loan balance for 2015 college grads.
3. Consider community college for the first two years. Much of the first two years of college are general education classes, if you are not in a STEM program. Tuition at a two year community college can be as little as one third the cost of a public four year institution.

We do have money set aside for our daughter, Kaye, to go to college. She will have many debt free choices. Even so, all three of these options are on the table, as she considers her future. Kaye isn’t passionate about any specific field as of yet, especially the STEM fields. So while she’s finding her muse, why not save some money by staying local and public.

The economic benefits of graduating from college are well documented, but they can be dented by the burden of student loans. Before you say yes to that private or out of state stretch school, think about the lifelong impact carrying student loan debt will have on your kid. Perhaps the end result will be just as good with a lower cost educational option, and their financial well being will unquestionably be better.