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College students: Don't limit dreams with debt

Huge school loans can hinder future growth. Think about potential income before signing the dotted line.

By Kathleen Connell / September 15, 2008

A college education has long been viewed as a ticket to a better quality of life. It is probably the most important decision a student will make and it may have the highest rate of return in achieving life goals. Unfortunately, some students do not think clearly about this decision, buying the "hot" college brand and assuming large amounts of debt. By overinvesting, they destroy their chances for a brighter future.

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"Excessive student debt, often made without an explicit decision on its impact on future life choices, not only restricts traditional career choices but the basic ability of young people to take risks – requiring them to defer their dreams," says Robert Shireman, executive director for the nonprofit Project on Student Debt.

Carmen Berkeley, a 23-year-old who graduated from the University of Pittsburgh last year, assumed a huge financial burden to attend a public university as an out-of-state student.

"My life is definitely impacted by my $80,000 college debt from the University of Pittsburgh," she says. "I really want to go to law school, but can't unless I get a scholarship. Though I believe my college education was a good investment, I doubt I will ever own a car or a house."

The nonprofit US Student Association, where she serves as president, contributes a $200 monthly stipend to assist in retiring her loans. Once she completes 10 years of public service, Ms. Berkeley will also qualify for loan forgiveness under the 2007 Higher Education Act for a portion of her outstanding federal loans. Even with the stipend and loan forgiveness, it will take her more than 20 years to repay her debt.

Berkeley did not consider future income before assuming her loans, although she anticipated always working in the nonprofit or public sector. Her choices confirm a recent survey by student-loan provider Sallie Mae that post-graduate income was not a factor for 70 percent of students and parents in determining how much to borrow to finance a college degree.

So after the glossy college brochures arrive in the mail and the visits to leafy college campuses are over, students need to ask themselves: Can I afford this school without excessive borrowing? How long will it take to pay off that wonderful four-year experience at the campus of my dreams?

Students, remember: You will be deferring other dreams for a cool car, well-furnished pad, weekend ski trips, summer beach vacations, and the latest tech toys.