09/20/2011 12:05 pm ET | Updated Nov 20, 2011

How to Avoid Graduating College Summa Cum Debt

I can't imagine anything worse than starting out along your lifelong career path already tens of thousands of dollars in the hole -- if not worse.

Nationally, the statistics of recently minted graduates who already bear the mark of "Default" upon their credit records is staggering.

Of the 3.6 million borrowers whose federal student loan payments started coming due in 2009 -- the most recent period for which statistics are available -- 8.8 percent were already unable to keep up with their payments by year end 2010.

That's roughly 320,000 more people -- primarily young adults -- who at a time when they should be flying free, are instead weighed down by debt; beating back collectors and increasingly turning to our bankruptcy courts -- which can't actually forgive student loans -- in search of refuge.

The most recent student default numbers, released last week by the U.S. Department of Education, are at their highest levels since 1997. The year-ago casualties already numbered 299,000 delinquent debtors, and year-in and year-out before that, the number of young adult lives catapulted into chaos as a consequence of educational borrowing were still unforgivably high.

This is ludicrous.

What expectations are we setting for our young people and what life lessons are we actually teaching them if they have to take on burdens -- at a still relatively tender age -- that really no credible financial planner I know would recommend they take on at any age?

And what's their reward for this early burden? Are they assured of a good job? Do they earn long-term financial security? Does their social standing soar?

For some lucky students, these are the spoils of a good education -- regardless of the debt originally incurred.

But increasingly for others, higher education is not a guaranteed ticket to a meaningful career, financial security or social status. As such, it is simply shameful that our society continues to advance its sons and daughters, assembly-line style, into the financial grinder.

It is time to consider a fresh paradigm...

For this new standard, no student will enter a college or university without a well-reasoned plan and expectation to graduate debt free.

That's right. Don't go to college unless or until you can afford it.

The very first casualty of such an educational financing model is the canard that everyone needs -- and in many cases that everyone is entitled to -- a college education. Bunk.

We're doing our young people and our nation no favors when we allow students who can't pay for college to go nonetheless. It robs them and their families of the urgency to prepare far enough in advance to pay for higher education -- and to prioritize tuition savings over other discretionary spending alternatives.

It also makes it so much easier for colleges and universities to keep ratcheting up their fees, seeing as students and their parents can take years and years after graduation to pay back their debt, if they ever do.

In any such model, of course, accommodations would have to be made for students who would never have a prayer of raising the necessary funds to receive a quality education.

For those facing real financial hardship, a blend of scholarships, work-study programs and post-graduate loan forgiveness in exchange for working in certain in-demand industries, such as green energy, or charitable undertakings, would mean that no deserving student would ever be turned away for lack of funds.

Nor, importantly, would they be saddled with unbearable life-altering debt just because they started out underprivileged.

Not going to college is not the misfire that we've led ourselves to believe, because graduating from college is not the bulls eye we once thought it was.

Only 53 percent of those U.S. students who graduated from college between 2006 and 2010 now enjoy a full-time job, according to a recent sampling conducted by Rutgers University. These are the lucky ones -- the ones who have income to help offset their student loans.

And what of the other 47 percent? They spent four years (presumably) out of the workforce to get an education that no doubt has fully prepared them to recognize what a financial mess they're in now: Unemployed, buckling under the burden of loans, and four years behind their peers who did not detour to college on their way to employment.

The systems and approaches that would enable every college student to graduate debt free are not pipe dreams. They exist and only lack for the commitment of students, their parents -- and the overall educational system, to see them implemented.

Four Paths to a Debt-Free College Education

There are four general pathways I've identified that every student should consider to ensure a debt-free graduation: 1. Save It First. 2. Postpone It. 3. Do It Smarter. 4. Skip It Altogether

1. Save It First:

This is a go-only-if-you-can-pay plan for students and their parents. Its core elements are simple. Get out of the stock market. Stop gambling your tuition dollars on risky and volatile investment vehicles. Avoid fee-heavy, inflexible and under-performing 529 qualified tuition plans. And, most importantly, start saving very early by adopting a systematic, risk-free approach to accumulating sufficient wealth by the time you (or your children) enter college.

By the way, my Bank On Yourself self-financing strategy, documented at length in my bestselling book of the same name, allows students and parents to stretch their student loan payments (if necessary) beyond the college years, although they will never have to pay another penny in interest or principal to a conventional student lender and they will never be dunned for missing a loan payment.

Equally important, the Bank On Yourself method of saving for college allows you to avoid the risk and volatility of traditional college savings methods and greatly increases the chances your child will qualify for scholarships and financial aid.

2. Postpone It:

This is a corollary to Save It First. If your efforts to set aside enough money to pay outright for college haven't yet generated sufficient wealth to offset tuition and fees, delay entry for now.

Instead of undertaking a pro-forma, nonstop advancement from high school to college to graduate school (to the unemployment rolls and possible default), pause at each step long enough to gain some work and life experience and to earn and accumulate the necessary funds to pay as you go.

When you do enter college, you'll appreciate the opportunity all the more having earned your way. You're also likely to be more grounded when it comes to selecting the right school to attend and the best course of studies to pursue. Delay, and the maturity it brings, is an asset in that way.

3. Do It Smarter:

There are savvy ways to attend college and not go broke while you're at it. Consider, for example, which school you select.

In many cases, it is possible to get as good, if not better, an education from a less prestigious -- i.e. less expensive -- institution.

Ten years after graduation, when others are still paying off their educational loans, will any of your employers, customers or clients really care where you went to school? Or will it be your on-the-job performance that counts most?

(Quick, can you name which college your stockbroker, accountant, dentist or auto mechanic attended? Likely not.)

What other ways are there to reduce the financial burdens of college? Think outside the box.

Can you graduate in three years instead of four -- thus saving 25 percent on room and board and getting into the workforce sooner? Where will you live during school? Can you opt out of dorm living and either stay at home or organize a less-expensive living co-op with other students?

Maybe you can arrange the best of both worlds. Don't enroll in college immediately. Instead, find an employer who offers a plan to pay for some or all of your tuition to attend a nights-and-weekend degree program.

Finding unconventional alternatives to a straight four-years-all-expenses-included diploma is very doable if you'll make the extra effort.

4. Skip It Altogether:

Forget the cap and gown and earn your Ph.D. in the school of real life. These days, what can't you teach yourself using free resources widely available on the Internet and elsewhere? Numerous college courses -- many of them from the most respected professors and universities -- are just a few clicks away.

While your high school friends are gorging themselves with debt and what largely amounts to useless general knowledge, commit to educating yourself, earning, saving, and investing wisely.

The list of millionaires and billionaires who never went to college, or dropped out, is long and prestigious. No reason you can't add your name to it if you are dedicated and if great wealth is your ambition.

A college education remains a wise path for many. But it is far from the only path and you should carefully consider all of your alternatives before proceeding just because "everyone does it."

You are not "everyone."

New York Times bestselling author Pamela Yellen is the founder of, a website dedicated to helping people achieve lifetime financial security and self-reliance. As president of, she's helped hundreds of thousands grow their wealth safely and predictably.