Save $1 for College, Cut $2 in Debt

The explosion in student debt has been grabbing headlines. Political candidates have touted proposed solutions, and the Obama administration has released its College Scorecard—a compendium of raw data for individual schools on such things as cost of attendance, debt incurred by students, typical monthly debt payments and salary after attending.

But there’s another side to this story. September is College Savings Month, which should remind parents and students that every dollar saved is a dollar you don’t have to borrow. In fact, says Mark Kantrowitz, publisher of Edvisors.com, a Web site that focuses on paying for college, “every dollar you borrow will cost about two dollars by the time you repay the debt.”

The trouble with loans. That’s just one reason I’ve always thought that student loans can be both a blessing and a curse. They help students pay for college, but they also make it easy for students to get in over their heads (see our story How to Keep Student-Loan Debt Under Control). What’s more, a new analysis by the Federal Reserve Bank of New York finds that when the federal government expanded student aid in the form of Pell grants and subsidized loans, there was a significant increase in tuitions.

Data show that the biggest debts are run up by graduate and professional students—who can borrow as much as they wish, up to the cost of attendance. The worst default rates, however, are among students who borrow relatively small amounts but drop out of school without completing a degree.