A Reality Check on Student Debt

There's been a lot of hand-wringing over student debt lately. In some cases, college graduates are carrying astronomical loan burdens that have led to financial ruin. But the reality is a lot less harsh than it's being made out.

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By Sarah Wright

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Student Debt Realism

A spotlight has recently been shined on student debt, with some referring to the amount of student loan defaults as a second 'bubble' that may burst and lead to economic stability. Profiles of college graduates with debt burdens in the hundreds of thousands of dollars are becoming increasingly popular. This kind of media coverage has led a lot of prospective college students to wonder whether going to college is a financially smart decision.

Thanks to a recent New York Times editorial from Columbia University professor Judith Scott-Clayton, a different tune is being played on the subject of student debt. Scott-Clayton points out that some of the most egregious examples of student loan debt are being brought to the fore not because they're so common, but because they represent outlier examples of what can happen when you get in over your head with debt. Only one percent of college graduates end up with debt burden higher than $75,000, she says. Most college graduates - as many as 90%, according to Scott-Clayton - graduate with less than $40,000 in loan burden.

Spread out over a long period, that kind of debt just isn't that bad. It certainly isn't prohibitive. This kind of realistic thinking should be employed more often, because it's important that prospective college students understand that the education they want is in their grasp, whether they come from wealthy families or not.

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Rules to Live By

With some common sense, you can avoid being a part of the small percentage of student loan debt holders with unrealistic debt. Here are some things you can do to prevent yourself from digging yourself too deep.

Set a ceiling.

If you aren't sure what your financial status will be after college, set a realistic limit for the amount of loan money you're willing to take. Keep in mind that a sum that seems huge as a lump, like $50,000, isn't actually that much when spread out over several years.

Seek grants and scholarships.

If you can't pay for college out of pocket, try to get as many grants and scholarships as you can before turning to loans as a means of financing your education. Grants and scholarships typically don't need to be repaid, so you won't have to worry about that portion of your aid package when you graduate.

Start saving for emergencies during college.

Even if all of your immediate needs are met in college, it's a good idea to get a job and start saving while you're still a student. You don't need to build up a huge nest egg - even a few hundred dollars will help. This money can be saved for emergency situations when your loan payments get in the way of other things.

Don't rack up other debt.

If you want to be able to pay off your student loans quickly, don't get into other kinds of debt unless it is absolutely necessary. Paying off a credit card or other types of debt will get in the way of your ability to pay down student loans.

Don't turn your nose up at a job.

We can sympathize with the idea that you go to college in order to get on a career path. But you have to be realistic. The world simply isn't as kind to college graduates as it was 30, 20 or even ten years ago. You might have to take a job that is less-than-dreamy in order to pay off your student debt. That doesn't mean that you will never get on the track you want to be on, though. You'll just have to keep fighting for it.

Students graduating from college in a specific window got an extra break on loan debt thanks to a recent announcement from the White House.

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