Best college degrees: Should we care?

It’s college acceptance and graduation season, which means parents and students alike are asking the perennial question: What’s the most lucrative major? That’s such a hard question, because I worry that kids who have no aptitude for, or interest in, engineering or computer science will get scared off when they see charts like this one from CNN:

Pity the poor liberal arts major! It seems like people like me, who loved taking English and political science classes, are doomed! Before you get too depressed, there is still ample opportunity for liberal arts majors to land a good job, but they may need to set their sights a little lower.

The college Class of 2013 commands an overall starting salary of $44,928—up 5.3 percent from 2012, according to the National Association of Colleges and Employers. This is how it breaks down by broad categories of majors:

• Engineering $62,535
• Computer Science $59,977
• Business $54,234
• Health Sciences $49,713
• Communications $43,145
• Math & Sciences $42,724
• Education $40,480
• Humanities & Social Sciences $37,058

So here’s the deal, with nearly $1 trillion in total student loans outstanding, its clear that many students will have to borrow money to earn these degrees. The key is to keep total student loan borrowing levels at or below those first year salaries, so that recent graduates don’t drown under the weight of repayments. That may mean foregoing an expensive school or working harder at finding grants and scholarships.

Before you take the plunge and start borrowing money willy-nilly, here are answers to 7 important questions about student loans that originally appeared on CBSMoneyWatch.com.

1) What are the different types of college loans? There are three ways to borrow for education: Student loans (Federal Stafford and Federal Perkins loans), parent loans (PLUS loans), and private student loans.

2) What is a Stafford loan? A Stafford federal loan is awarded to students who are enrolled at least half time in college, complete the (dreaded) Free Application for Federal Student Aid and demonstrate financial need. Two-thirds of these loans are awarded to students with family adjusted gross income of under $50,000. Stafford loans come in two flavors -- subsidized and unsubsidized. With a subsidized loan, the government pays the interest while students are in school; with an unsubsidized loan, the student pays the interest and can defer payment until after graduation. So subsidized Stafford loans are preferable to the unsubsidized variety. The term is 10 years, although other terms are available via consolidation.

3) What is the interest rate on Stafford loans? Dating back to 1992, Congress set the interest rate on federal student loans at fixed rates ranging from 6 percent for loans issued in the 1960s to 10 percent for loans issued between 1988 and 1992. By the end of 2006, student loan rates were at 6.8 percent. The College Cost Reduction and Access Act of 2007 phased in a reduction of the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. The phase on newly originated undergraduate loans was 6 percent for 2008-09; 5.6 percent for 2009-10; 4.5 percent for 2010-11; and 3.4 percent for 2011-12 and 2012-2013. The rate is scheduled to revert back to 6.8 percent for the 2013-2014 school year unless Congress agrees to keep it where it is, which it is expected to do.

4) How much can an undergraduate borrow through a Stafford loan? 

Dependent Students	Annual Loan Limits
First Year	$5,500 ($3,500 subsidized/$2,000 unsubsidized)
Second Year	$6,500 ($4,500 subsidized/$2,000 unsubsidized)
Third Year and Beyond	$7,500 ($5,500 subsidized/$2,000 unsubsidized)

5) What is a Perkins loan? A Perkins loan is a subsidized federal loan offered though colleges. It works like this: The U.S. Department of Education provides funding to the school; the school determines which students have the greatest need; and then the school combines federal funds with some of its own funds for Perkins loans for qualifying students. The government pays the interest on the loan while the student is in school and also during the 9-month grace periods. There are no origination or default fees, and the interest rate is 5 percent for the 10-year repayment period.

6) What is the Federal Parent Loan for Undergraduate Students (PLUS)?PLUS loans allow parents to borrow money for uncovered education costs. Unlike with Stafford or Perkins loans, larger loan amounts are available up to the total cost of college, at a fixed interest rate of 7.9 percent. Interest is charged from the date of the first disbursement until the loan is paid in full. Credit checks are conducted for the loans, and PLUS loans are the financial responsibility of the parents, not the student.

7) What is the difference between a PLUS loan and a private loan? Private lenders may offer more flexible repayment options and perhaps a lower interest rate. However, more private loan rates are variable, which means the cost of the loan can rise in the future.