September 20, 2011 | | 1 Comment It’s no secret that the dollar doesn’t go as far as it used to, which means luxuries must often go by the wayside. But what is considered a luxury? Prior to 2008 getting a college degree, for example, was as common for the middle class as going to high school. But now that the middle class struggles to keep a foothold on the center rungs of the economic ladder, college suddenly appears to be about as attainable as booking a trip on the Space Shuttle. Unfortunately, the cost of a four-year college degree has risen 600 percent since 1980, which has lead to a staggering result: Currently two-thirds of all college graduates have student loan debt when they receive their degreesâ€”roughly to the tune of $24,000 (on average). This begs the question, is the cost of a college degree worth it in this economy? To answer that you have to ascertain what a college degree will get you over the long haul. Consider that even though the overall unemployment rate in America is just under 10 percent, it’s only 4.3 percent for college graduates. And over a lifetime college graduates make considerably more than those who never obtained a college degree at all. That alone seems like a good reason to go to college. But what about all that debt? On average it now takes a recent college grad at least year to find a career-oriented job that pays a reasonable wage. But if a person is forced to take out loans to pay for college, how will they make the loan payments if they can’t find a job right away? With college debt now over $800 billion and growing, it surpasses credit card debt as the largest financial sinkhole in America. According to the website The Project on Student Debt (which is an initiative of The Institute for College Access and Success) taking out student loans to pay for college is not a bad idea IF you engage in the right kind of loans. Federal student loans are legitimate forms of financial aid; private (bank) loans are not. Not All Student Loans Are Created Equal Turns out private loans are the biggest credit risks to students and should be avoided at all costs. If the only way you can go to college right now is to take out private loans, then you should probably put college on hold and work for a while to save up. A private college loan with a bank is no different than a credit card, which means they (the banks) solely dictate your interest rate, your payments, and payment schedule. Typically these loans are uncapped and cannot be erased by bankruptcy. This debt will follow you around FOREVER, wreaking havoc with your credit score, which can prevent you from starting a business, buying (or renting) property, or even getting a job (many HR departments use applicants’ personal credit scores in the vetting process). Is a college degree worth all that stress? Not likely. A federal student loan, however, is designed to be manageable (and the application is easy). They’re backed by the Federal Government and controlled by Congress (not a bank’s board of directors). Therefore, the purveyors of these loans make every effort to work with you on repayment. For example, federal student loans are unemployment deferred (meaning you don’t make payments unless you have a job), the size and frequency of your payment is based on your household income, and if you become disabled, die, or the school you’re attending ceases to exist, then the loan is cancelled. Plus, they can be forgiven in exchange for certain types of community service. And if you’ve consistently paid on the loan, the remaining balance will be forgiven after 25 years. What Can Colleges Do to Help Students Avoid Bad Debt? According to The Project on Student Debt, colleges and universities are taking a more proactive role in counseling students on the riskier aspects of private college loans. Financial aid offices already talk up the benefits of federal student loans, however, they seldom mention anything about the pitfalls of private loans. Some schools have even gone so far as to require financial aid counseling for any student who does not pay cash for their education. And many colleges’ financial aid offices are coordinating with other colleges to employ common debt-avoidance practices, which includes monitoring cashier and bursar offices to track incoming private loan tuition payments so that the financial aid office may counsel students on managing debt before it gets out of control. Plus, as of October, 2011, the federal government will require all U.S. colleges and universities to provide online “net price calculators” to help students and their families figure out how they’re going to pay for college, taking into consideration exactly how much long-term college debt they can handle. The sad truth is not many people can afford to pay for college now, which means they either have to get scholarships or take out loans. But with fewer scholarships being handed out, loans have become the go-to solution for most co-eds. This is okay, as long as you borrow wisely and from the right lending institutions. With a little bit of effort you can avoid graduating with that dreaded debt monkey on your back.