07/18/2013 04:05 pm ET Updated Sep 17, 2013

Don't Let Student Loan Interest Rates Kill Dreams of a Brighter Future


It may be hard to believe, but decisions surrounding college are starting to be based more on money factors than on benefits to the graduate. It used to be that a student chose a particular college based on its faculty, location, the student experience or a family tradition. More and more now, it's coming down to a question of how much it costs. In fact, has just released its 2013 College Education ROI Rankings to help students determine if their college education will pay off. Decisions can be made based on best ROI (return on investment) by region, gender, school type and major.

With tuition, living costs and transportation costs all escalating, some students are opting to cut back on their academic career, attend a different college than their first choice, take longer to graduat and even stall or forego the college process altogether. These choices could have a major impact on students' dreams of a brighter future. They may be forced to live at home longer, delay marriage, or accept a job that does not motivate them.

The situation is being made even worse by the indecision in Washington, D.C. regarding the interest rates on student loans. In mid-July, Congress once again failed to take action on this area of vital interest to so many young people and their families. Because of this inaction, the interest rate on federally subsidized student loans still stands at 6.8 percent as of July 1. Direct subsidized loans are available only to undergraduate students who have financial need. The U.S. Department of Education pays the interest while the student is in school at least half-time, for the first six months after leaving school, and during a period of deferment.

Although Congress might still come up with some type of retroactive solution, many families are already trying to figure out what this increase means. It will not affect any loans that were previously taken out, but it might change their opinion regarding any additional debt. While it is usually possible to graduate and find a job that can cover loan payments at a 3.4% rate, paying back loans at 6.8% could cause serious financial difficulties.

There are some different ways to pay back student loans, including an income-based model, but the best way to keep costs in line is to take as few student loans as possible. To reduce the need to borrow as heavily, students and their parents needs to look at the financial aid package from the college and make sure it includes the most financial aid available. Scholarships can play a pivotal role in providing an extra source of income. Students may also have to be more creative about earning money towards college. Full-time jobs during the summer and work-study programs during the school year can often help reduce the financial burden.

Parents also need to have a serious discussion with their children about the consequences of debt so they can encourage them to take out only the amount of loans necessary to cover college costs. Loans should not be used to cover living expenses. Debt should only be incurred in the order of Federal student loans, bank student loans and credit card debt because of the interest rates involved.

Students should still seek advice when it comes to money matters. They can talk to parents, the financial aid office at school or a professional college financial aid advisor. Map out a smart financial strategy and don't let any interest rates destroy your dreams of a brighter future.