The Dos and Don’ts of Financing a College Education

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Student DebtThis Tuesday, December 21 at 9 pm, CNBC will present a one-hour documentary that asks the $874 billion dollar question: Are student loans the next bubble to burst? We recently explored this issue at and while some industry experts aren’t worried, you can’t ignore the heaping amount amount of evidence that seems to point to an industry on the verge of a mega collapse.


  • Student loan debt totals $874 billion, nearly $50 billion more than credit card debt.
  • 96% of students at for-profit universities, like The University of Phoenix and Kaplan Education, borrow money to attend.
  • The average loan balance for a college graduate is roughly $24,000.
  • 20% of federal student loans that entered repayment in 1995 have since gone into default.
  • Student loans drove consumer debt in October.

Add to that an uncompromising default policy for private student loans, which makes them practically impossible to discharge in a bankruptcy filing, and you’ve got one heck of a debate. “Price of Admission: America’s College Debt Crisis,” examines the ballooning debt crisis, interviews lenders, borrowers, school administrators and government officials, all to explore, what I believe to be, a financial news story that will only get bigger in 2011. My DVR is set.

In the meantime, for prospective college students weighing their financing options, here’s a crib sheet outlining my personal Dos and Don’ts:

Do apply for federal aid. Complete the FAFSA form (the Free Application for Federal Student Aid) as soon as possible for access to fixed-rate federal loans.

Do exhaust all qualifying scholarship entries. Millions of dollars of scholarship money goes unclaimed each year, simply because students fail to apply. Check out and

Don’t rely on private student loans. They’re a pain in the you-know-what. Unlike federal loans, the interest rates are generally not fixed. They’re variable and are known to jump. Modifying private student loans is also extremely difficult.

Do consider working part-time. Whether it’s bartending, doing a work-study or SAT tutoring on the weekends, making money while you complete your degree to help pay down the cost of college is a smart way to finance your education.

Do consider community college. You can pocket tens of thousands of dollars by attending a community college for the first year or two and then transferring to a four year college. Just make sure the credits will transfer.

Don’t take longer than four years to finish.  On average, both public and private schools are graduating just 37 percent of their full-time students within four years, according to a 2008 analysis by the American Enterprise Institute. Those extra years mean more money.

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