Smart borrowing

"The price of anything is the amount of life you exchange for it." — Henry David Thoreau

The price of a college degree, as any student or parent of a student can tell you, has gone up faster than the rate of just about anything except the amount of debt the average college student assumes on graduation day.

The Great Recession caused state governments, including Utah's, to cut back their support of public colleges and universities. In attempts to make up the shortfall, the institutions of higher learning increased tuition. Students and their parents have had less money to pay the tuition bills and so applied for more student loans.

In 2010 the average student debt at graduation nationally was $25,250. The total U.S. student-loan debt has surpassed consumer debt at more than $1 trillion this year.

The good news is that Utah graduates have the lowest debt on average in the nation — $15,509.

Some argue that borrowing to invest in a college degree will pay off in higher lifetime earnings. They say that working long hours while attending school to avoid debt is risky because students who work full time take longer to graduate and many never get degrees. And their academic performance and important social activities suffer.

Others take the position that student-loan debt is an ugly albatross that should be avoided at all costs.

So what's a college student to do?

Not surprisingly, education is the key to sensible borrowing. Students should weigh the earnings potential for their type of degree and make sure they will be able to support themselves and their families and pay off their student loans after graduating. They should plan to limit student loan payments to about 8 percent of gross pay. For example, it makes sense for a student to borrow much more to help pay tuition for a medical degree than for a degree in English.

It would make sense for colleges to charge less in tuition for a humanities degree and more for degrees with higher earnings potential, especially since professors' salaries are based on the economic value of their field. But they don't.

However, planning can help avoid the stranglehold of debt. For those smart parents and prospective college students, the Beehive State's college saving plan has relatively low overhead and high returns and includes tax credits for account contributions.

Being smart about debt can make getting smarter more affordable.