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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.

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According to the Project on Student Debt, the average 2006 graduate carried $21,100 in loans. But student debt has a disproportionate effect on middle-class families. Families with incomes between $50,000 and $100,000 will borrow nearly $5,000 a year to pay for college. Those that make less than $50,000 will borrow on average $3,900, and families that earn over $100,000 will borrow $3,710.

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To begin paying off those loans, graduates of the class of 2008 will receive an average salary of $36,400 according to the National Association of Colleges and Employers. Sounds great, until those graduates have to pay taxes, bringing net income to $27,500 or approximately, $2,300 a month. According to federal tables, they can expect to spend $1,800 to $2,000 a month for rent, utilities, out-of-pocket healthcare, car payments, gasoline, insurance and, entertainment. The remaining $300 to $500 a month may seem comfortable enough for the $230 a month needed to repay a $20,000 student loan at 6.8 percent over a 10-year period.

But repaying college tuition is only one part of the debt equation.

"Social debt is another concern as students face the pressure of keeping up with other students, hanging with the right crowd," says Sharon Fries-Britt, an English professor at the University of Maryland. "Credit cards are being overextended, and students are indebting their future, limiting their life choices."

For students who don't want to have daunting repayment obligations, consider these ideas:

•Know the average amount of debt that students carry at each of your potential colleges. Check for more information.

•Use the 2009 US News college ranking table that values schools based on debt load (

•Remember, you may not qualify for a grant based on need if your family's income exceeds $100,000, so don't assume a grant unless you are certain you qualify.

•If short on funds, choose a cheaper route. Live at home for two years, attend a community college, and transfer to a state university.

•Check out your likely starting salary at – don't plan to borrow more than your first year's income.

Dr. Kathleen Connell is a professor at Haas Graduate Business School, University of California, Berkeley.