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College Choice and Finances

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Over the next month or so, letters of acceptance will be in the mailboxes and inboxes of millions of anxious college-bound seniors and returning adults across the country, which means decision making is in full swing from now until May 1st.

The U.S. Department of Education is currently pondering the creation of a new Postsecondary Institutional Ratings System (known as PIRS) to help Americans make smart choices about their college selection. PIRS is slated to use institutional and outcomes data like graduation rates and student profiles. Today, students and families can make their own assessments of the financial and career right "fit" for them using concrete and practical data points readily available.

Let's start with finances. With average student loan debt for a four-year degree tallying $29,400, according to the Project on Student Debt, families should examine carefully the financial aid packages being offered. Many institutions supplement their offer letters with a more standardized Financial Aid Shopping Sheet. These sheets make financial comparisons a little easier across institutions, but the bottom line is that families need to understand some terminology before comparing letters.

Break each financial aid letter down into how much is provided in scholarships and grants (which don't have to be paid back) and how much is being offered in loans (which have to be repaid through a variety of payment plans and at differing interest rates). Calculate the gap between what's being offered in scholarships, grants and loans and the total cost to attend. Subtracting the first three from the latter is what will have to come out of your pocket in the short term. Use those figures to gauge how much it is going to cost you and what your total student loan debt is likely to be to get your degree. Many families make the mistake of focusing on just the first year, but it is important to know what you are getting into for the long haul before making the decision to enroll.

The Consumer Financial Protection Bureau cautions against borrowing more than what your future earnings will allow you to repay. As a general guideline, your total student loan debt should not exceed your expected starting salary (knowing the debt will be paid over many years, not just that first year out of school). Even that loan amount might be too high for comfort. A more practical rule of thumb is to keep monthly student loans payments to no more than 10 percent of your anticipated monthly income.

Consider employment data. Ask colleges about their job placement rates and whether they have information on average starting salaries for graduates with the major you intend to declare. The University of Texas System, for example, created a great online tool that provides employment earnings and average student loan debt by degree and major. Don't live in Texas? You can also estimate likely starting salaries by using data from the U.S. Department of Labor's Bureau of Labor Statistics. Check out this article for more information.

Keep in mind that while college students should be encouraged to follow their dreams, balancing those dreams with the prospect of finding a job that covers their bills after graduation is equally compelling. This is especially important for those who are expecting to graduate with sizable student loan debt. Check out the Bureau of Labor Statistic's Occupational Handbook to find the latest job opening projections by occupation. Openings for accounts and auditors, for example, are expected to grow by 13 percent through 2022, compared to an 11 percent growth rate for all occupations.

Selecting the right college is an art of balancing dreams and aspirations with a practical sense of the future families and students can reasonably afford to fund. Take the time now to figure out which options allow students to have a bright future, yet won't break the bank. A "right fit" institution, degree and career can pay off down the road in manageable student loan debt and a healthy start to any student's financial future.

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