The grave consequences of student loan default illustrate exactly why it's so important for students, especially those in high-risk default groups, to carefully evaluate what kind of student loans they're taking on, says Haley Chitty, director of communications for the National Association of Student Financial Aid Administrators in Washington, D.C.
While federal student loans come with borrower protections, including loan forgiveness and income-based repayment options that lower or eliminate borrowers' monthly payments, private loans don't have these protections. If borrowers get in over their heads, it may be impossible to reduce payments on a private student loan.
Chitty adds that students should also consider how much debt they can reasonably handle.
Calculating a reasonable debt
"(Students) really have to look at what they can expect to make coming out of college," Chitty says. "If you figure out what your monthly (loan) payments will be and estimate what you can expect to make, that's a good place to start."
When choosing a school, Cunningham recommends that students brainstorm a few career options that interest them and research starting salaries. If the future monthly payments on their student loan are substantially higher than 8 percent of their future monthly salary, students should think carefully about whether they're taking on too much debt.
Students also need to consider a school's graduation rate as part of the larger financial picture, says Pamela Fowler, executive director of the University of Michigan's Office of Financial Aid.
"You should be able to get out in four years or less," Fowler says. "The longer you're in, the more you borrow."
The good news is that if students stick to Stafford loans and take out the maximum $31,000 that dependent undergrads are entitled to, they will be in a good position to pay their loans back after graduation, says Baum. The reason: Student loan debt is an investment, one that still has substantial payoff for students who finish college.
The controversial Pew Research Center survey, cited earlier, reaches a similar conclusion: 86 percent of college graduates say their college education has been a good personal investment.
"There are certainly individuals for whom the money they spent on college turned out not to be worth it," says Baum. "But for most individuals, it turns out to be the best investment they could possibly make."