Over the Thanksgiving holiday I asked my niece, a college senior, how much her classmates were borrowing to pay for college. She regaled me with the tale of one student who took out a $100,000 loan to study abroad in Australia. That kind of borrowing is one example of the student loan bubble I wrote about a few weeks ago. This week, I wanted to offer some practical follow-up advice for college-bound seniors.

The seeds of future debt can be planted in the college search process, which often relies on student preferences rather than what a family can afford, says Frank Palmasani, who has been a high school and college counselor for three decades and founded the Web site managingcollegecosts.com.

“It’s as if you said to a student, ‘we need to purchase a car; go on the computer and plug in all the things you want and we’ll look at those models,'” he says. “It’s nuts, but that’s often what has happened.” Moreover, traditional searches — based on a school’s location, size and majors offered — will often yield similar institutions and similar costs.

Palmasani suggests families do a more wide-ranging search that includes two-year junior colleges; schools they can commute to; highly selective and less selective state schools — both in the student’s home state and out of state; and elite institutions and private colleges.

Although the latter two options are the most expensive, they do offer some ways to save. “Private colleges such as Harvard have the most unique way to package financial aid, and for families that fit that need, they create attractive packages” because their endowments are so large, he says. And the less highly-selective colleges tend to provide significant discounts with merit scholarship programs.

But those generous aid packages are more likely to include loans, making a state flagship college a better deal in most cases, says Zac Bissonnette, a senior at the University of Massachusetts and author of “Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships or Mooching Off My Parents.” If a student is determined to go private or out-of-state, she should focus on colleges where her academic record and test scores greatly surpass those of the median applicant — to boost the possibility of receiving aid.

But first and foremost, families should recognize that higher education is a business, backed by Madison Avenue-scale marketing, and the advice they receive is likely to be biased. High school counselors encourage students to apply to “name” colleges to boost the high school’s reputation, says Bissonnette. College financial aid officers have a vested interest in getting students to enroll, no matter what the cost. And the media, with its rankings of top schools, exploits parental anxieties.

One big misconception people have, says Bissonnette, is that a good (read: pricey) college will earn your child a return on investment. “At worst, you’re flushing money down the toilet. At best, you’re making a crappy investment. It’s certainly not enough of a return on investment to spend $200,000 — and it’s not even close if you have to borrow $200,000.”

In fact, for equally talented students, the choice of college does not confer a long-term economic benefit, according to research by Princeton economist Alan Krueger. He looked at the earnings of students who qualified for Ivy League schools but chose state institutions. Twenty years after graduation, their incomes were roughly equal to their Ivy League peers. (Click here for more on that research.)

Bissonnette argues that families are too quick to borrow before exhausting all of their options. Students can work year-round, and parents can slash costs or raise extra income by working a second job while kids are in college. “I don’t buy into the idea that student loans are absolutely necessary and that they’re a fact of life, because I did it,” he says. “You have to work; that’s not necessarily the most fun thing, but there are very few things that change your life like college.”

Bissonnette has seen first-hand the damage wrought by extreme borrowing, which he says is endemic among students who attend schools one tier below the Ivy League. “I have a friend who graduated from New York University with a theater degree, which is what he wanted to do his whole life,” says Bissonnette. “He graduated with $100,000 in debt. He can’t do theater with $100,000 in debt. You can’t live in New York City with $100,000 in debt. So this degree he got to try to launch his career ended up being the thing that prevented him from pursuing the career he wanted.” (NYU ranks No. 1 among colleges for graduates with the highest total student loan debt, according to a Department of Education report.)

Here are a few rules of thumb for would-be borrowers:

Start saving now in a 529 college savings plan, even if your child is just a few years away from college, says Mark Kantrowitz, founder of the Web site finaid.org. Every $1 borrowed in student loans will cost about $2 on average by the time it’s paid back.

Maximize scholarships and grants first, and then tap federal loans. Palmasani says families should borrow no more than the current direct student loan maximum of $27,000 over four years. Kantrowitz advises students not to borrow more than $10,000 for each year of undergrad. Both say families who have to borrow from private lenders to fill the gap should consider a cheaper alternative.

Beware of schools that offer a fabulous financial aid package that must be renewed each year, says Bissonnette. Chances are it may not be as generous later on. And the Byzantine rules of financial aid will penalize families who look to fund the shortfall in common-sense ways, such as having a child or parent work more hours. In other words, a state school that costs $15,000 a year and offers no financial aid may be a better deal than a private college that costs $50,000 and offers a $35,000 discount that must be renewed each year.

Do not borrow more for your entire education than your expected starting salary. Just keep in mind that if you use this rule of thumb and switch from, say, an engineering or accounting major to one not as potentially lucrative, like humanities or social work, slash your borrowing accordingly and transfer to a cheaper school. Alternatively, take a year off to work full-time and earn the tuition money.

Know that overborrowing for college may spoil your other life plans, because you cannot escape the debt, even if you file for bankruptcy. The monthly payments will eat up income that might otherwise be used to buy a car, travel, save for a home, wedding, retirement and college for your own children. If you default, the lender may garnish your wages.

If you borrow, double the cost of everything you buy with the loan money — because that’s the real cost of the loan including interest. That $10 pizza is really $20. The $4 latte, $8. And that $100,000 boondoggle to Australia is a whopping $200,000 — an amount that borrower will likely be paying off for decades to come.