03/19/2012 11:20 am ET Updated May 19, 2012

Can Your Family Afford College?

I'm a firm believer that the more knowledge you acquire, whether through college, trade school or self-study, the richer your life will be. But as college tuition and fees continue to skyrocket, students and parents increasingly are asking, "Is a degree really worth the cost?"

For many people it certainly is: On average, college graduates earn roughly $550,000 more than high school grads over a lifetime, according to a Pew Research Center study -- even after factoring in the costs and lost earnings associated with attending college. Not only that, the unemployment rate among college grads is only half that of high school grads -- 4.2 percent vs. 8.3 percent -- according to recent Bureau of Labor Statistics figures.

So, assuming your kid is interested in college, a good follow-up question might be, "How much can we afford to spend on higher education without digging ourselves into a hole?" Unless you started socking away money long ago or Junior can count on a full-ride scholarship, you'll probably need to take out student (and parent) loans to pay for that degree.

Just be sure to tread carefully so you're not saddled with too much debt. Here are a few factors to remember:

Not all degrees are created equal. The average college graduate now carries roughly $25,000 in student loan debt, but many families rack up far more, especially if they have several children. Students should follow their passions -- in education and in life -- but remember, someone with a degree in engineering or computer sciences will probably garner much higher pay and more easily be able to pay off loans than graduates in lower-paying fields like education, social work or the arts.

In other words, don't take on debt that will overwhelm your future ability to pay it off. To save money, many students start out at a community college then transfer to a four-year institution. Just keep in mind that thanks to budget cutbacks and increased enrollment, it may take longer than two years to complete lower-division coursework at a J.C.

Calculate college's true cost. As with buying a car, when tallying a college's true cost there's the sticker price -- the stated full cost for tuition, fees, room and board, etc. -- and there's the net cost you'll actually pay after subtracting various grants, aid, work study, Expected Family Contribution (EFC) and other financial adjustments that may apply.

Each college uses its own calculation method, so traditionally it's been difficult to compare one school's net cost with another's. But thanks to a new federal law that kicked in October 2011, all post-secondary institutions must post a "net price" calculator on their websites to help families more accurately estimate the true costs of attending, based on the student's individual situation.

Colleges may either use the Department of Education's basic calculator template or develop their own if they wish to ask for more detailed personal information. Calculations typically take only a few minutes to complete.

Although you won't be able to do exact comparisons between institutions, the new calculators do provide a good starting point for estimating the true costs of various colleges. Indeed, some students find that because of financial incentives offered, such as grants, merit-based scholarships and low-income subsidies, they can actually afford schools they'd previously ruled out. In some cases, expensive private schools end up being cheaper than comparable state schools.

Another good comparison tool is the Department of Education's College Navigator, which lets you search for details about colleges throughout the U.S. -- everything from tuition and housing costs, to majors and degrees offered, to typical SAT scores of students attending. You can even build a list of schools you're interested in for side-by-side comparisons.

Fill out FAFSA. Even if you think your income is too high to qualify for financial aid -- having several children enrolled at once may prove you wrong -- you still should fill out the Free Application for Federal Student Aid (FAFSA) form, since it's also required by virtually all colleges, universities and career schools for access to federal student loans. Federal loans generally have more favorable interest rates and repayment terms than private loans so it's best to exhaust your alternatives there first.

Get a FAFSA form from your school guidance counselor or financial aid office, at the Federal Student Aid website, or by calling 1-800-4-FED-AID. Even though the FAFSA filing deadline for federal loans for the 2011-2012 school year isn't until June 30, 2012, many state and individual school deadlines occur months earlier. Plus, you may be required to complete additional forms. (Find your state's deadline here.)

Repayment options. If you're having difficulty paying off student loans and want to avoid defaulting, there are a number of repayment options available, including Income-Based Repayment (IBR), under which required monthly payments of federally insured loans are capped at an affordable level relative to your adjusted gross income, family size and state of residence. To learn more, visit this Department of Education site and the Project on Student Debt.

If you expect your financial hardship to be temporary, other loan repayment options, such as economic hardship deferment, forbearance and extended repayment, may be better options. For details, read's Solutions for Borrowers Who are Having Trouble Repaying Education Loans.

To learn more about student loans, read my previous blogs, "Start Your Student Loan Search Now," and "Easing Student Loan Repayments."

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial adviser for specific information on how certain laws apply to you and about your individual financial situation.

To participate in a free, online Financial Literacy and Education Summit on April 23, 2012, go to Practical Money Skills for Life.