| Ivan Sanchez is two months behind on his student loan repayments. He owes $1,400, and soon will owe nearly $2,000. He has a new baby—his third—at home, and just $300 in the bank. Five years ago, Sanchez earned an online associate degree in networking and security from EPCI College of Technology plus an online bachelor’s degree in management from the University of Phoenix Online, in hopes of advancing his IT career. While his employer chipped in $15,000, Sanchez was left owing $45,000. Sanchez was promoted, but his $10,000 raise wasn’t enough to keep up with his student loan payments. Sanchez is not alone. Nearly half of all students graduate from online college programs with unmanageable debt, according to Marc Scheer, author of No Sucker Left Behind: Avoiding the Great College Rip-off.
How Much Debt? But there are also students who borrow money and don’t end up in Sanchez’s shoes. Most experts agree that students can safely incur a small amount of debt to fund a quality education. The difficulty comes in defining terms like “small” and “quality.” How much debt a student can bear depends on a number of variables, says Karen Fooks, director of student financial affairs for the University of Florida. “Does the person have a family to support? How high are the mortgage payments and current consumer debt? What field of education is the individual pursuing? How long will it take? What is the market for employment in that field? And what are average salaries in that field?” Students should borrow based on the lowest end of what they can expect to earn as a starting salary, says Scheer. “You don’t want to spend more than five percent of your salary on loans,” he says. (The industry standard definition of “unmanageable” is closer to eight percent.) An online calculator can help students crunch the numbers; Scheer likes the ones at FinAid. You don’t have to borrow the entire amount you qualify for, says Megan Castro, who took out a small loan to earn her bachelor’s from Washington State University. Her husband qualified for a $25,000 loan for his online degree program through University of Phoenix. “We talked about it and decided to only accept $5,000,” says Castro. “That was a very good decision, because we would have most likely wasted $20,000 on things that were not needs.” Which Type of Loan? The size of the loan isn’t the only influence on the weight of your debt. The source and terms of the loan matter, too. In general, students should avoid private loans, say both Scheer and Fooke. Government loans offer lower interest rates and more flexible repayment options. And many government loan programs allow students to cancel or defer payments if they enter certain fields or active military duty. (CitiBank’s Mark Rodgers says that its CitiAssist program does let borrowers pay back debt gradually or even suspend payment for “short-term unavoidable circumstances,” but Sanchez says that he has not been allowed to take advantage of these options.) Select Your Online College Carefully Borrowing only pays if your degree boosts your ability to earn money, which means an employer must recognize its value. Students should attend only accredited schools where they will earn a recognized degree and be able to transfer their credits if they choose to leave. And, says UFL’s Fookes, “Students should be wary of dubious claims of guaranteed employment after graduation or unrealistically high earning potential.” There’s only one way to know for sure how employers will view a particular degree or a particular program, says Scheer—ask. “Sometimes you have to go right to the employer, even drop them an email: ‘Would you consider hiring anyone from here? Would you recommend that I pursue this degree?’” Several factors make it tough for students to make good decisions about borrowing. • Ubiquitous and sometimes misleading ads by private lenders. Private lenders often advertise heavily, telling students they can borrow large amounts without the hassle of applying for financial aid. But government-backed student loans often have much better terms, says Fooke. • Pressure by for-profit admissions officers to sign you up. Some admissions officers—particularly those at for-profit colleges who need to enroll larger and larger incoming classes—may pressure students to act fast, before they research all their options. “There are plenty of schools that are sending out mail and email telling people to apply and enroll at their school with very little regard to their debt levels,” says Scheer. • Lack of financial aid counseling. Schools don’t always counsel students about financial issues. Castro says that because she went to school online, it would have been a “huge task” to seek out advice from an on-campus financial expert, so she asked family members instead. Sanchez says neither EPCI nor the University of Phoenix Online counseled him about debt. Would more information have made a difference? “Absolutely,” Sanchez says. “I’m not sure I would have kept going to school had I really known the position I’d be in today. "You feel like you get educated and all your problems are solved, but this has just put a tremendous burden on my family. I don’t feel like I really gained a whole lot, at the end of the day.”
Will your new online degree be worth the debt? Ask yourself that question—then borrow accordingly.
Related ResourcesShould You Trust Your Online College's Financial Aid Officer?Pension and Home-Equity Borrowing: A Bad IdeaGuide to Scholarships and Free MoneyConsumer's College Cost Cutting Guide
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