Financing Higher EducationDo the two words “student loans” make you cringe? In my humble opinion, based on the realities of helping a son through college and medical school and two step-sons through college, the new rule of thumb when discussing student loans should be “buyer beware.” One size no longer fits all and it’s time for a reality check.

According to David Wiedemer, co-author of  Aftershock, “Borrowing money for college is not the problem — stupidity is. Job creation isn’t keeping pace with U.S. demand and wages are declining.”

Today’s college business model is unsustainable. Colleges can no longer rely on tuition increases to cover out-of-control costs of education. It is rapidly imploding and five forces are creating The Perfect Storm. Consider this:

1. Only 49 percent of 2009-11 undergraduates found full-time jobs in their fields within a year of graduation.

2. The current job market is still far from booming.

3. The Class of 2012 faces increased competition from unemployed and under-employed 2008-11 graduates plus laid-off workers with more experience.

4. Student loan debt burden is approaching $1 trillion (average tab is $25,000).

5. Starting salaries are lower than 10 years ago (adjusted for inflation) and may not be recoverable.

I can’t help quoting Phil Izzo of The Wall Street Journal who says: “We know that a college degree boosts earnings, but a student’s choice of major also plays a big part.”

Tuition, room and board at many private colleges is approaching $55,000 per year. And so, students and parents should ask: What is the likely return on this investment? How many 18-year-olds really know what they want to do career-wise? Will today’s jobs soon be obsolete?

Americans with master’s degrees receiving food stamps from 2007-10 increased from 102,000 to 290,000; with Ph.Ds the number increased from 10,000 to 34,000. But it’s not all bad news. Qualified students admitted to top-tier schools are more likely to receive scholarships because many of these schools have large endowments.

There remains a “but.” Students and parents should beware of scams. The U.S. Department of Justice and 30 states’ attorneys general are investigating for-profit schools for unethical business and student loan practices. Most are online, unaccredited or touting bogus credentials, with 25-35 percent student loan default rates, high dropout rates and poor job placement rates. Equally disturbing is their practice of steering students to private lenders offering more money at higher interest rates. Other scams involve lower-tier schools wooing students with full tuition scholarships based on maintaining a 3.2 cumulative GPA but grading on a curve that ensures half will lose their scholarship by the end of the second year and be required to take on student loans. As a reminder, student loans are not currently dischargeable in bankruptcy.

Here’s the good news: There are creative ways students and parents can maximize goals while minimizing debt.  After all, getting credentialed for the 21st century should not include mortgaging a family’s or student’s future.

  • Coursera gives students an opportunity to take a “test drive” at minimal cost. Coursera, launched by an associate professor at Stanford, offers on-line STEM and humanities courses. They are highly interactive, with students participating globally and benefitting from faculty feedback and peer-to-peer exchanges. For $100, any student who successfully completes the course can receive a certificate that can help them advance their skill set and credentials.
  • Some colleges, like Northeastern University, offer work/study undergraduate degree programs. There are numerous grants and scholarships available to students, if they take the time and effort to apply.
  • Others may want to take a multi-step approach. A student interested in being a dentist might benefit by attending a vocation-based institute like Lorenzo T. Walker Institute, earn a dental assistant certificate with hands-on experience, be eligible for a high-demand job with good pay, and work toward higher degrees with employer tuition assistance. Likewise, a student interested in becoming a doctor might consider entering the medical field as a certified nursing assistant or surgical specialist, work as they complete a bachelor’s degree, and then apply to medical school.
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