Planning for College and Student Loan Debt

September 13, 2012

Student loan debt has outstripped credit card debt: more than $1 trillion is owed in student loans, and the average senior is graduating with $26,000 in debt. Students and their families are facing confusing and sometimes overwhelming choices. City Treasurer Stephanie Neely is here to offer some help navigating a costly and confusing process.

Q: You are the City's Treasurer, what economic effects are you seeing from heavy student debt?

A: These young people are graduating into the toughest job market in 50 years and they are carrying a heavy debt load: an average of $26 thousand dollars in student loans. What happens? They can't find work, they don't have the capital to buy a home or a car. A lot of them are moving back in with mom and dad. That puts the brakes on the entire economy: it slows the housing market, the big box retailers and the car industry.

Q: Does every student need to go to college?

A: Not everyone is going to need or want to pay for a 4-year-degree. I think we need to have more choices for people who want to go into trades and manufacturing. High Schools like Austin Polytech are turning out highly-skilled machinists who can fill good-paying jobs straight out of high school. Yes, you can earn more money over a lifetime with a college degree. But you also have to pay it off: you have to determine if the investment is worth the return. Some people question the value of a $200-thousand dollar Liberal Arts degree in our current job market.

Q: What degrees have the best return on investment?

A: The so-called STEM majors: Science, Technology, Engineering and Math. Health-related jobs are seeing growth too.

Q: If a student wants a college degree, how should they pay for it?

A: The best money is FREE money, so look for scholarships and grants. The first step is to fill out the FAFSA, the Free Applications for Federal Student Aid. It requires the same information as you need to file your taxes, so get those taxes done first, and then complete the FAFSA. The earlier you file the better your chances of getting money. These deadlines are typically early February.

Q: What kinds of student loans are out there?

There are three basic types of loans undergraduate students should know about: federal loans made by the government directly; federal loans made by banks or other lenders and guaranteed by the government; and private or alternative loans from banks or other private lenders that carry no government guarantee. Every student should first look to federal loans, because the interest is capped by the government.

We have barely scratched the surface: for more information you can contact the Center for Economic Progress and take advantage of what they call Financial Aid U.


The most popular federal loan is the Stafford loan, available to students regardless of financial need, and either from a lender or from the government directly. Perkins loans are available to students who have the greatest financial need; priority is given to students receiving federal Pell grants, which are awarded to low-income students. Parents of students can also take out federal loans, known as Parental Loans for Undergraduate Students or "PLUS" loans.

The federal Education Department has information on Stafford, Perkins, and PLUS loans on its website, which can be hard to navigate.

For more information, there are plenty of Web sites out there aimed at future college students.

Some sites even can help compare loan terms from different lenders to help students choose the best deal, like SimpleTuition and Graduate Leverage But some sites are in fact owned by lenders or other companies, or - like SimpleTuition - they are paid referral fees by lenders, so students should not rely on any one source of information.

Some helpful sites are maintained by both nonprofits and for-profit organizations not directly in the student loan business. Those seeking to learn more may want to check out The Institute for College Access and Success. The nonprofit's Project on Student Debt provides tips on shopping for and comparing different student loans. Mark Kantrowitz runs, a popular source of information for students. Most of the information provided discussed above is included in the Education Department's Guide to Federal Student Aid.

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