The Most Costly College Financing Mistakes: How To Avoid Them

Apr 21 2014, 4:29pm CDT | by

While I highly value a college education — I have two degrees — I despise the idea of college debt.  I graduated without this onerous burden, but few can do it today. That’s why there’s more than $1 trillion in student debt outstanding.

There are ways to avoid the student debt trap. Some are straightforward, while others require some research. Here are my favorites:

* Avoid Private Loans. This is financing offered entirely by a private institution without federal loan guarantees.  Rates on private debt are much higher than the federal programs — up to 18%.  While only about 6% of all student debt is in this form, according to the College Board, avoid these loans at all costs.

“Private loans are one of the riskiest ways to finance a college education,” says Susie Bauer, a 529 manager for Baird’s Private Management Group, which just published a report entitled Statistics on Student Education Debt. “You would almost be better off using a credit card.”

* Using Loans to Cover Everything. There are a number of ways to finance college. The best way is to seek “merit” aid through grants, which don’t have to be paid back.

Colleges will also offer “tuition discounts” by lowering their “sticker” prices. Also consider work-study programs or living in off-campus housing. The principle here is to cover as much as possible without borrowing money. Look everywhere you can for “free money” for college.

“Make it your mission to uncover free money, understanding that it will take time and effort—but can significantly manage the burden of your student loans,” says Eric Adamowsky, co-founder of  “For example, there are many smaller scholarships and grants available through non-profit organizations, business groups, local chamber of commerce, city government, and state.”

You can also find thousands of scholarships by searching Finaid.

* Not Vetting a College By Cost and Return on Investment. There are lots of ways to see if a college is a good fit besides the look of a campus. Determining whether a degree make sense over time involves weighing many factors.

Let’s say you want to go to a highly selective college. Relative to the cost, what are the chances of making a decent salary after graduation? This is critical. A new college search engine called Noodle ranks colleges based on selectivity (odds of getting in), influence (reputation), education quality and outcomes (long-term earnings).

Sorting out a college’s “return on investment” is important once you work through the other variables of total cost, right fit and college ranking. A service like Payscale can help you on this front by providing earnings of graduates and evaluating a college relative to its cost. In any case, you’ll need to do some homework to avoid major debt.

John Wasik is the author of Keynes’s Way to Wealth and 13 other books. He writes and speaks about personal finance and investing.

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