Thinking Through College Debt

Jen Smialek finished graduate school $26,000 in debt. She used her master’s degree in education for a single year before being laid off and changing professions. Now she’s in the Internet marketing business, and her expensive degree is essentially useless. She recently told her story to CNNMoney.

What did she do wrong? In short, nothing. With the recent downturn of the economy, Smialek – and numerous other young graduates – couldn’t find adequate work in her field. Now a few years later, she could try to break into the education field again but would meet stiff competition from fresh graduates. Through little fault of her own, her degree is unlikely to help her career or earnings.

Despite countless stories like Smialek’s, experts still agree that it’s almost always worth it to pursue an undergraduate or graduate degree. You need to weigh the value of your own education – specifically how much you expect to earn after graduation – against the cost of a degree, which varies greatly based on whether your school is public or private and whether you plan to live on campus.

The Value of a College Degree

As education level rises, so does an individual’s expected lifetime earnings. While individuals with only high school diplomas earn an average of $1.3 million in their lives, those with bachelor’s degrees earn about $1 million more. Master’s holders can expect an additional $400,000, while those with doctoral and professional degrees earn even more.

But things don’t always go according to plan. While those with more education usually earn more, a volatile job market and a high unemployment rate can still cause plans to go astray. That’s why it’s important to look at not only a degree’s worth but also its cost.

The Cost of Higher Education

Higher education is all but synonymous with student loans. Consider how much college debt you’re willing to incur before you decide on a school. If your top choice costs too much, you might want to think about a less expensive alternative such as starting at a community college or public university.

For the 2011-12 academic year, tuition at private undergraduate schools averaged $28,500. With the help of financial aid such as scholarships and grants, students paid an average of about $13,000 per year instead. You can use this as a rough estimate of your cost, not including fees or room and board.

From there, you can figure out how much you’ll likely pay right away and how much debt you’ll need to cover the rest of your expenses. Experts suggest that your total student loan debt should not exceed the salary you expect to earn in your first year of work.

If you don’t know what salary range to expect, experts suggest you exercise prudence. In other words, don’t take out loans you don’t think you can repay. Of course, these are simply guidelines and not steadfast rules. Each student’s individual and family financial abilities will vary. Only you can decide what’s right for you financially and educationally.

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