College Savings

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College debt: How much is too much?

June 10, 2013

It's no secret that college graduates tend to earn more money than those with a high school education. In fact, the U.S. Census Bureau estimates that over the course of a career, a college degree can be worth as much as $1 million more than a high school diploma alone.

But there's another number that can have just as big an impact on a college graduate's lifetime finances: the amount of debt he or she takes on to pay for that education.

There's no debt like no debt

Every dollar you save for college is a dollar you won't have to borrow—or owe.

A 529 savings account offers tax advantages, high contribution limits, and investment flexibility—a combination you won't find with other college financing options.

Learn more »

Student loan debt is growing at an alarming rate: A study by the New York Federal Reserve found that Americans owe almost $1 trillion toward education-related loans, which works out to about $25,000 per borrower. Default rates are growing too, with the U.S. Department of Education reporting that more than 9% of 2010 graduates had defaulted on their loans, up from about 8% the previous year.

For students and parents alike, college loan debt can result in many years' worth of anxiety and hardship. That's why it pays to do a little homework ahead of time.

1. Know what you're getting into

When choosing a school, don't ignore the financial factor. As you're weighing your options, look carefully at each institution's total price tag. Also think about:

  • Return on investment. Weigh the cost of getting a degree against the earning potential of a typical graduate.'s annual report on colleges includes salary figures from more than 1,000 public and private colleges and universities.
  • Average indebtedness. How much debt does each school's typical graduate carry? Kiplinger's annual report on best college values lists average debt burdens for dozens of institutions.

Another thing to consider carefully is a major. There are many resources with information about job opportunities and average salaries for various careers. Doing a little research today may spare you considerable distress—both financial and emotional—down the road. The Bureau of Labor Statistics,, and offer this kind of information.

If your child's sights are set on a career where job prospects are limited and earning potential is low, you may want to have a heart-to-heart conversation with him or her before going deeply into debt.

2. Explore financial aid options

The Free Application for Federal Student Aid (FAFSA) website is a good place to find tools that can help you hold off excessive student debt. It's more than just the place to apply for federal financial aid; FAFSA also has a section where you can search for scholarship opportunities. Some schools—especially private colleges—are boosting the amount of aid they're offering students, according to a Wall Street Journal report.

Ask for help from the financial aid staff at each school your child (or you) considers attending. They're the experts, after all, and they can guide you through the twists and turns of the college financing maze.

3. Consider an alternative

Setting aside money for college long before your child sets foot on campus can help reduce his or her future debt burden.

With that in mind, a 529 savings account is well worth considering. These plans offer significant tax advantages, high contribution limits, and investment flexibility—a combination you won't find with other college financing options. Plans are sponsored by individual states—with benefits that vary from state to state—but you can invest in any state's 529 plan, no matter where you live or the location of your school.

Learn more about 529 plans available through Vanguard »


  • All investing is subject to risk, including the possible loss of money you invest.
  • The availability of tax or other benefits may be contingent on meeting other requirements.
  • The links to third-party sites will open new browser windows. Except where noted, Vanguard accepts no responsibility for content on third-party sites.
  • For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.
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