Paying for college without taking on crippling debt

I like to tinker with new tools that help families make better college decisions. The sooner you run the numbers -- meaning before junior year in high school -- the greater your ability to avoid debt.

But I’m always perplexed at how backwards the whole college decision process has become. Families are entranced by the “brand name” of the college or fancy new dorms, dining halls and recreational facilities. Most of that is irrelevant if you’re stuck with college loans that will stay with you for decades.

So I like to apply meaningful metrics when talking to families about college financing. How much will a degree cost in terms of monthly payments when you pay off loans? What is your likely post-graduate salary? Will one major help you pay off loans quicker?

The superficial answer, of course, is majors that lead to better-paying jobs will make borrowing more acceptable. Higher salaries will allow you to pay off loans faster. But you have to crunch a few numbers to make this decision.

Services like Payscale give you some perspective on the best-paying majors and colleges based on return on investment (ROI) well after graduation. As you can imagine, engineering, actuarial science and computer science majors make the most money. 

There are so many combinations of majors and colleges, though, that the optimal decision becomes muddled. Some degrees are worth more at some institutions than others. And for-profit schools may be a waste of money, having led to billions in college loans that can’t be justified in terms of better-paying jobs. 

Drilling down into the relationship between majors, colleges and future salaries is essential to making a rational college decision -- particularly if you’re going into debt. So I recently started experimenting with a service called NitroScore to see if I could find out more about the ROI decision.

Let’s see what happens with two very different college searches. Let’s say you wanted to get a degree in engineering (as an in-state student) from the University of Michigan, a big public school with a respected engineering program. According to NitroScore, some 31 percent of your aftertax income would go toward paying off loans. 

While that sounds high, the service said your aftertax/after-loan take-home pay would be a healthy $2,500 a month. Since engineering still pays pretty well, that’s a good place to start if you have the aptitude and interest in the field. You can not only pay off your loans fairly quickly, you’ll have money to save and income to spend -- if you budget wisely. 

Now let’s say you’re an actor and you want to get a theater/drama studies degree from Northwestern University’s highly regarded program. NitroScore reports that 126 percent of your salary will go toward loans, meaning you’re in the hole for about $615 a month. That merits a NitroScore of “zero.” Note: The higher the NitroScore number, the lower the debt burden relative to expected salary. 

Yes, I know this is a grossly unfair comparison. Engineering has plenty of well-paying jobs, and theater is, well, risky -- unless you have parents willing to “subsidize” you while you’re auditioning for that breakthrough role. Even then...

Also, I’m not making a value judgement about either school, profession or the social value of doing one thing over another. I truly believe that you should try to do what you love while also trying to pay your bills. You can be a theater major and still do lots of jobs to make a decent income. 

Yet when I talk to parents and students, I don’t hear them talking about the impact of loans. College debt can’t be discharged in personal bankruptcy. It stays with you unless you’re completely disabled. Graduates with payments that eat up a large portion of their salaries can’t buy homes, cars or start families. That’s a social burden that causes far too much anguish to the 43 million Americans carrying college loans. 

As with all college information services, though, you have to keep in mind that to make an informed decision, you need to ask a lot of questions.

Is a state school a better fit than a private one? Which one is likely to leave graduates with the least amount of debt? I trust services like College Scorecard and College Abacus to help on these queries as first stops in the planning journey.

And I would never suggest that anyone get locked into one major. Most students switch their majors while in college. Just keep in mind that to understand how a career path can lead to prosperity, you have to be conservative with the numbers. 

Look at multiple college-major combinations. And understand how monthly payments will affect your life. The difference between a reasonable and unreasonable debt burden could be resolved if you do a modest amount of homework. 

  • John Wasik

    John Wasik is the author of The Debt-Free Degree and 15 other books. He writes and speaks regularly on personal finance issues throughout North America.