Student loan debt is a growing crisis in America. Over 44 million Americans collectively owe nearly $1.5 trillion in student loan debt. The average student loan debt for a graduate of the class of 2018 was over $29,000. With rising tuition costs and potentially decades of loan payments ahead of them, many students feel overwhelmed by the prospect of taking on so much debt just to get an education. However, there are strategies you can use to minimize your student loan burden. Being proactive and informed about how to reduce costs and debt can help you graduate with less financial strain.
Choose an affordable college
One of the best things you can do to avoid excessive student loan debt is to carefully consider your college choice. Look for an option that provides quality education while keeping costs down. Here are some tips:
- Consider attending a public in-state university. Public colleges charge much lower tuition for residents of their state. You’ll save a lot over private or out-of-state options.
- Start at a community college. Completing general education prerequisites at a community college can save tens of thousands in tuition before transferring to a four-year university.
- Research tuition rates thoroughly. Compare total costs between different colleges you are interested in.
- See if your state offers discounted tuition rates. Some areas provide lower in-state tuition at public regional schools.
Making a budget-friendly college choice from the start can significantly reduce how much you’ll need to borrow.
Apply for scholarships and grants
Scholarships and grants are essential ways to lower college costs and debt. These forms of financial aid do not need to be repaid like loans do. Here are some tips for obtaining scholarships and grants:
- Search for national scholarships using free online databases. Many large scholarships are available to students across the country.
- Check with guidance counselors about local and regional scholarships. Your school may offer some just for students in your area.
- Ask about institutional grants from the colleges you apply to. Schools have funds to assist students with financial need.
- Look for minority scholarships if they apply to you. Some are designated for underrepresented student groups.
- Maintain a high GPA. Academic performance boosts eligibility for merit-based aid.
Scholarships and grants can cover portions of tuition, fees, room and board, or textbooks. Put in the effort to apply to as many as possible.
Work during school
Holding a job while in college can help minimize the amount you need to use loans to cover costs. It takes diligence to balance working with studying, but the income source can pay off.
- Look for part-time jobs on or near campus. They may offer flexible scheduling around classes.
- Tutor students in subjects you excel in. Many students and families seek tutoring help.
- Work study programs let you earn money via jobs set up by your school.
- Find paid internships over the summer or during the year. These provide experience and income.
Evaluate how much you reasonably can work each week based on your academic workload. Carefully budget earnings to help cover tuition, rent, books, and other costs as able.
Minimize living expenses
The total cost of attendance at college includes not just tuition and fees but also living expenses. Finding ways to cut down on room and board, transportation, and other costs of living can help reduce your debt burden.
- Live at home if commuting is feasible. Rent and food will be much lower than dorm costs.
- Choose the most affordable meal plan. Only get what you expect to use.
- Cook low-cost healthy meals. Making your own food saves over a daily cafe latte and avocado toast.
- Split costs with roommates. Sharing an apartment divides up rent and utilities.
- Use public transportation to eliminate car expenses.
The less you spend on living expenses and extras, the more money you will have for direct college costs, cutting your need for loans.
Borrow federal loans first
If you do need to take out loans, prioritize federal student loans over private ones. Here are the advantages of federal loans:
- Lower interest rates than private loans
- Fixed interest rates
- Numerous repayment plans to fit different budgets
- Opportunities for income-driven payments
- Deferment or forbearance options for financial hardship
- Potential for federal loan forgiveness programs
Federal direct and Perkins loans overall provide the best terms and protections. Exhaust this option before considering private lenders.
Compare private loan options carefully
If federal loans are still not enough, research private student loans thoroughly before applying.
- Compare interest rates between multiple lenders.
- See if a co-signer can help you get a lower rate.
- Understand the fees lenders charge.
- Look closely at repayment terms and options.
Avoid lenders advertising “easy approval” or other sales tactics. Focus on the best rates and terms for your situation.
Make interest payments during school
For federal student loans, no payments are due while enrolled at least half-time. However, interest still accrues. Making interest payments while in school can save substantially on overall debt.
- Even small payments make a difference over time.
- Any loan amount not covered by payments will capitalize when repayment begins.
- Paying $25 or $50 a month could save thousands down the road.
Review your budget to see if making interest payments fits. The compounding interest savings could be well worth it.
Start saving for repayment early
Before graduation arrives, develop a strategy to start tackling loans right away. Here are some tips:
- Build an emergency fund to help make payments if income is delayed.
- Research starting salaries in your intended career to estimate what repayment might cost.
- Look at living expenses in areas you may relocate to for work.
- Create a lean post-college budget minimizing costs.
- Find roommates or live at home to save on rent.
Run the numbers to see how much of your projected take-home pay can reasonably go toward student loans. Advanced planning helps the repayment transition go smoothly.
Explore income-driven repayment plans
Federal loans offer income-driven repayment (IDR) plans that base payments on earnings. These plans can help manage loan payments on a tight budget.
- Monthly payments are capped at a percentage of discretionary income.
- Any remaining balance is forgiven after 20-25 years of payments.
- IDR plans include Pay As You Earn, Revised Pay As You Earn, Income-Based Repayment, and Income-Contingent Repayment.
IDR plans provide an affordable option if your income after college is low. Just be aware forgiveness timeframe may increase total interest paid over time.
Research public service loan forgiveness
Those working full-time for government or certain non-profit employers may qualify for federal Public Service Loan Forgiveness (PSLF). It offers forgiveness of remaining loan balances after 120 qualifying payments.
- Eligible employers include government organizations and 501(c)(3) non-profits.
- Payments must be made on an eligible IDR plan.
- Application and certification are required for qualifying employment and payments.
If interested in PSLF, research the requirements early so you can align employment and repayment plans accordingly.
Consider refinancing for lower interest
After establishing a positive payment history, you may be able to refinance student loans to a lower interest rate. This reduces costs over the repayment term.
- A good credit score and stable income help secure the best refinance rates.
- Rates may be lower than original federal or private loans.
- Watch for fees some lenders charge.
- Understand new loan terms, which may lack protections of federal loans.
Run the numbers accounting for a refinance lender’s fees and rate reduction potential. Refinancing can offer big interest savings in the right circumstances.
Conclusion
The combination of skyrocketing college costs and easy student loan availability has saddled generations with unprecedented debt levels. However, utilizing the right financial strategies can help current and future students minimize their need to borrow. Choosing an affordable college, earning scholarships and income during school, budgeting wisely, exploring federal loan options first, and planning carefully for repayment can all make a big difference in avoiding excessive debt. While loans may still be necessary, informed planning from the start of college can reduce the burden both now and in the future.