12/13/2013 05:44 pm ET Updated Feb 12, 2014

Student Debt: It's More Complicated (And Better) Than You Think

The end of December is traditionally a time when high school seniors and their parents sit down for a serious conversation about college. As they debate the merits of various colleges, there is one question that inevitably comes up: Can we afford it?

Over the past few years, media attention to student debt levels has made family conversations even more stressful. Indeed, an informative report released earlier this month (Student Debt and the Class of 2012 by the Institute for College Access and Success) provides sobering data for families to consider. The report reveals that student debt level continues to rise each year. Seven in 10 college graduates in 2012 had student loan debt; if they graduated with a loan, the average debt was $29,400. The report also stated that this figure may actually be higher as many for-profit colleges did not voluntarily contribute data on student debt levels (students who choose for-profits are more likely to borrow, and they borrow more money on average). The data also don't include all private loans that students take out (institutions are often not aware of all private sources of student debt). Alarmingly, student loan default rates have risen six years in a row.

What do parents and graduating seniors need to consider as they look at financing a college education? They need to know that there is tremendous variation in student debt load across geographic regions, states and institutions, and that they should look beyond "sticker price" (published tuition and fees) when comparing colleges.

The report reflected that college students tend to borrow more in certain regions of the country, notably the East and Midwest. Total debt at graduation varied from $18,000 in one state to $33,650 in another, and the likelihood of a student having debt upon graduation ranged from 41 percent to 78 percent. While the variation in average debt load across states is significant, variation across higher education institutions is even more significant -- from $4,450 to $49,450 -- and the likelihood of having debt upon graduation ranged from 6 percent to 100 percent.

As families discuss the affordability of various colleges, they may prematurely eliminate a college from consideration based on the stated sticker price. While it is true that higher-cost colleges tend to graduate students with higher average debt, there is no direct correlation. There are several examples of "pricey" colleges that graduate students with little debt and vice versa.

Why is sticker price not a perfectly reliable predictor of average student debt? Multiple factors influence the average student debt at an institution. For example, the size of an institution's endowment can impact student debt level. A large endowment may allow a college to provide more need-based and merit aid to students. An institution's financial aid packaging policy is critical. At some of the more expensive colleges, low- and moderate-income students may benefit from generous financial aid packages.

To make an important and informed decision about how to finance a college education, families need to have easy access to accurate data. To assist families, the federal government has provided consumers with several tools including the FAFSA4caster, College Scorecard and net price calculators. Net price calculators (required by the federal government to be on every college's website) are particularly helpful as they provide families, before they actually apply to a college, with an individualized estimate of the cost of attending a specific institution.

Families may also want to work directly with financial aid offices at those colleges and universities under consideration. At Albion College, as at many colleges and universities, financial aid counselors are quite willing to provide student loan counseling to assist families in understanding available options and making wise decisions. Many colleges are now teaching students about debt management and financial literacy. And, this education needs to extend past graduation. Students will want to increase their borrower awareness of repayment options such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE) plans.

Is it really worth the time and effort for a family to explore college affordability options? Yes -- a college education is life-changing. College graduates and their families benefit from an enhanced quality of life; local communities gain an informed and engaged citizenry; and, with a better educated labor force, our nation can compete more effectively in a global economy. Especially now, in our still-troubled economy, employment opportunities alone speak to the value of a college degree: The unemployment rate for recent high school graduates is more than double the rate for recent college graduates. College is an investment, and, like all major investments, it should be carefully researched by the consumer. It is worth the effort.

5 States Where Tuition Is Rising
5 States Where Tuition Is Rising