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How to escape the student loan trap

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With more than $1 trillion in federal and private student loans outstanding, the news media have suddenly discovered the issue. In my opinion, the real problem is that student loans represent a double-edged sword: The very loans that are supposed to help students pay for college also contribute to driving up costs, and that encourages students to borrow even more.

I've offered my advice before and it bears repeating: The best way to get out of the student-debt trap is to avoid it altogether.

>> Double down on saving. State-sponsored 529 college-savings plans are one of the best ways to save. The good news is that 529s are reaching a broader market, with more accounts opened in smaller amounts.

>> Pick a school you can afford. It isn't worth borrowing $100,000 that your kids won't be able to pay back to go to a pricey school. Start your search with Kiplinger's list of best college values (http://kiplinger.com/reports/best-college-values). One of the rules my husband and I had with our kids was that we would pay the bulk of their undergraduate costs, and they would cover grad school. Now, with advanced degrees becoming necessary in some fields, I might amend that. Consider holding back some savings for grad school, even if it means that kids attend a less expensive college.

>> Go a different route. In today's competitive economy, everyone needs post-high-school training, but that doesn't necessarily mean four years on campus. It could be as simple as attending community college for a couple of years and then transferring. Or you could get a foot in the door with a certificate awarded by a community college or a private vocational or technical school. I predict that we'll see more innovative ways to deliver affordable education, such as online learning patterned on the popular Khan Academy (www.khanacademy.org) or Western Governors University (www.wgu.edu).

>> Know what you're getting into. Run the numbers to see how much it will cost to repay your loans. FinAid.org has a simple calculator based on the starting salary for your chosen profession. Ten colleges and universities recently announced that they would standardize their financial-aid awards to disclose, among other things, the estimated monthly payments for federal student loans that students would likely owe after graduation.

>> If you must borrow, stick with federal loans. Private loans don't have the same flexible repayment plans as federal loans, and they make it easy for kids to get in over their heads.

Send your questions and comments to moneypower@kiplinger.com.

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