The Best Way to Pay for College

College students and their parents have been taking on more and more student loan debt in recent years, and a new study shows this trend is likely to continue. Sally Mae, a leading student lender, reports that families save an average of about $2,600 for college annually, about 3.6% of their income, but according to the study, parents' confidence in their ability to save enough money for college has declined sharply over the past year, and only 29% are likely to reach their college savings goal. This leads parents and students alike to wonder how much debt should they shoulder in pursuit of a college education. Now it's certainly smart to think about this before you choose a school and begin acquiring loans. So, here's my rule for student loans: Parents and students should limit total student loan debt to no more than one times the student's expected average annual pay over their first ten working years. Now that's a bit of a mouthful, so let's take a look at an example. If you think you'll start out earning about $30,000 a year, and then end up earning $85,000 ten years later, that's an average annual salary of $50,000 over ten years. If you follow my rule of thumb, your total student loan debt should not exceed $50,000, and, of course, less is always better. Now, sticking to this limit ensures reasonably affordable monthly payments and should allow you to pay off your loans over ten years. Now, I completely agree that a college education is a good investment, but I think taking out too many student loans can result in significant financial damage over the long term. Now, luckily, it's possible to obtain a degree for less. Students and parents have a variety of options, like attending a state university instead of a private college or attending community college for two years before heading somewhere more expensive. Military service and work- study programs are two more possibilities. I urge families who see big student loans in their future to think seriously about these alternatives. It might be a hard decision to make now, but turning away from an education financed by too many loans will clear the path to a better financial future.