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Special to msnbc.com
updated 7/1/2011 8:19:58 AM ET 2011-07-01T12:19:58

Allison Skare is still living as a college student, unable to invest or save for retirement. A new car is only a dream — even though Skare is a college graduate and has a good job in the government sector.

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And Skare is one of the lucky ones.

The 2010 University of Missouri grad has $22,000 in debt, slightly below the national average. Many students take on $100,000 or more in debt to finance their education. U.S. student loan debt has reached $900 billion, more than what Americans owe on credit cards. Those struggling with repayment can't default on student loans in bankruptcy, and the problem continues to get worse as states cut funding for higher education and schools raise tuition.

"It didn't seem to add up as much as it did that first payment," Skare said. "That was a big shock and very much a revelation on how much debt I'm in."

The student loan crisis is about to get worse. At least 43 states have decreased funding for public higher education since 2008, according to data from the Center on Budget and Policy Priorities.

Story: Before you sign for that loan, get educated

"Students fall in love with their dream college, they want to go and it doesn't matter the price," said Lynn O'Shaunessy, who writes about higher education affordability on TheCollegeSolution.com. "They just go, 'Oh, we'll pay it off when we get out,' not realizing this is a huge financial burden they're taking on when they're 18 years old. They don't even have a clue what they're getting themselves into."

The problem isn't just one for students and parents — it affects future generations, too, said Mark Kantrowitz, president of FinAid.org and FastWeb.com, websites that match students with potential grants and scholarships.

"More students are taking on 20 or even 30 year repayment terms, which means they're going to be repaying their own student loans when their children enroll in college," Kantrowitz said. "They're going to be less willing and less likely to borrow for their children's education."

An indebted graduate is less likely to donate to his or her alma mater. Saving for retirement isn't even an option, graduate Skare said.

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"I'm certainly not in a position where I can invest right now or put a lot in savings away. My living expenses and student loan payments are a very big majority of my salary right now," she said.

Skare, who lives in Columbia, Mo., said her job allows her to pay back her debt, although she must live frugally. Students who rack up $100,000 or more to attend graduate schools are finding it more difficult to make the payments, but they won't stop coming, O'Shaunessy said.

"I would rather be in trouble with the IRS than with my student loans," she said. "You can never get rid of these things. They can haunt you for the rest of your life. They will hound you and, if you still owe money, they can garnish your Social Security checks if they last that long."

O'Shaunessy said students should not exceed the approximately $25,000 cap on borrowing from the federal government. Government loans have more favorable payback terms than private, or bank-backed, loans, she said. Graduates can even sign up for a plan which ties their payments to their salaries.

No one should borrow more than his or her expected starting salary, although ideally, everyone would borrow less than that threshold, Kantrowitz said. That means students majoring in high-paying fields can have more loans than those entering low-paying careers.

Borrowing some money to attend college is a good thing, O'Shaunessy said.

"Some debt is good because it gets you in the game and it gets you a college degree, and you absolutely need that," she said. O'Shaunessy also said federal law will soon require all U.S. public colleges and universities to post cost calculators on their websites, which she called a victory for consumers.

For Skare, there have been other lessons from the process.

"Going through this process, I definitely want to make it a personal goal to save a little bit to provide for my own children in the future," she said. "It's also brought a lot of character and personal responsibility as I pay these things back."

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