How To Reduce Your Student Loan Debt
For many students, student debt is inevitable. Among students who file for Free Federal Student Aid (FAFSA), about 85% of bachelor’s degree holders graduate with student loan debt, an average of about $ 30,000.
Very few students graduate without any student debt. In addition to choosing wealthy parents, students who graduate debt free tend to attend a public college in the state, such as a low-cost community college, and live at home with their parents.
If you can’t completely eliminate student loans, these tips will help you find ways to reduce the amount you need to borrow and the cost of paying off your student loans.
Choose a cheaper college
Each college is required to have a net price calculator on its website. These calculators provide a personalized estimate of your net price for one year to attend college.
The net price is the difference between the total college costs and the gift aid. Tuition fees include tuition, accommodation and meals, books and transportation. Gift Aid includes grants, scholarships, and other funds that don’t need to be earned through work or reimbursed. Think of the net price as a reduced sticker price.
Just as airlines charge a different price for each seat on an airplane, different colleges will charge you a different net price. All get you to your destination, despite the price differences.
When creating a list of colleges as a high school student, consider financial suitability in addition to academic and social or environmental suitability.
Likewise, when you compare college financial aid award letters, calculate the actual net price.
Beware, as some colleges do not list the cost of attendance on the award letter, or only mention a portion of it (for example, only direct costs, such as tuition, which are paid in college). Other colleges blur the distinction between grants and loans, presenting loans as if they reduce college costs.
Prefer colleges with a lower net price, unless the net price difference is less than $ 1,000. But, be careful, because about half of colleges frontload scholarships, where the net price is lower in the first year than in subsequent years.
A lower net price correlates with lower debt upon graduation.
Your most affordable options will include state public colleges and colleges with no-loan financial aid policies. Public colleges give you an equally good quality education for a quarter to a third of the cost of private colleges. Colleges with no-loan financial aid policies, which include Ivy League Colleges and MIT, are replacing loans with grants in their needs-based financial aid programs.
But don’t take a detour to a community college to get a bachelor’s degree, as it could cause you to miss your destination. Community colleges are good options for an associate’s degree or certificate. However, if your goal is to earn a 4-year degree, only about one-fifth of students who start at a community college with a six-year bachelor’s degree, compared to two-thirds of students who start at a 4-year college.
Maximize resources excluding debt
Focus on free money first.
- Apply for financial aid as needed by filing the Free Application for Student Financial Aid (FAFSA) as soon as possible on October 1 or after the last year of high school and each year thereafter. Students who deposit earlier get more scholarships.
- Search for scholarships using free scholarship matching services, such as Fastweb.com and College Board’s Big Future. Increase the number of matches by answering optional questions, not just mandatory questions. Apply for each scholarship for which you are eligible.
- Claim the American Opportunity Tax Credit (AOTC) or Lifetime Learning Tax Credit (LLTC) on your federal tax return.
Every dollar you earn in scholarships and get in grants is a dollar less you will need to borrow.
Save for college by using a 529 education savings plan sold directly to reduce students’ need for borrowing. University savings can also increase the choice of universities, allowing you to choose a university that is more expensive than you could otherwise afford. Every dollar you save is a dollar less you will need to borrow.
Work part-time during the school year and full-time during the summer to earn money to pay for tuition. You can earn up to about $ 7,000 per year without affecting eligibility for need-based financial assistance. Ask your employer if they offer tax-free tuition assistance.
Reduce college costs
About half of college costs are for living expenses, not tuition and fees. Adopting an austere lifestyle can reduce the need to borrow. Live like a student while you’re in school, so you don’t have to live like a student after you graduate.
Here are some key ways to cut college costs:
- Live off campus in an apartment with a roommate to share the rent, or get free rent by living at home with your parents.
- If your parents live more than a day’s drive away, minimize the number of trips between school and home.
- Buy used textbooks and / or resell your textbooks at the bookstore at the end of the term. This can cut textbook costs in half.
- Take advantage of free resources in college and college discounts.
Know what you owe
Increased awareness of spending and debt is the first step in exercising restraint.
Budget before borrowing. Distinguish between needs and wants. Lower tuition fees by borrowing only what you need, not as much as you can. Every dollar you borrow will cost you around two dollars by the time you pay off the debt.
Understand your student loans. Estimate what you will owe and your monthly payments under the standard repayment plan. Find out how interest works, deferral and repayment options, and what happens if you don’t pay off your student loans.
If you need to borrow, borrow from the federal government first, as federal student loans are cheaper and offer more flexible repayment terms than private student loans.
If you are running out of federal student loan limits, it may be a sign that you are borrowing too much money. Keep your student loan debt at graduation in line with your income. Try not to borrow more for your college education than your expected starting annual salary.
If you need to borrow private student loans, find the lender that offers you the cheapest loans. Apply for a private student loan with a creditworthy co-signer to increase the chances of approval and lower the interest rate.
Repayment plan for your student loans
Make a plan for how you can pay off your student loans.
Here are my top tips for saving money when paying off your student loans.
- Choose the repayment plan with the highest monthly payment you can afford. A higher monthly payment reduces the total interest paid and pays off the debt faster.
- Pay more than the minimum to reduce the total interest paid over the life of the loan.
- Target the loans with the highest interest rates for faster repayment by making additional payments on these loans.
- Take advantage of school discounts and automatic payment, which may result in a lower interest rate.
- Claim the student loan interest deduction on your federal income tax returns.
- Ask your friends and family to help you pay off your student loans. It is a good alternative to the usual graduation, birthday and holiday gifts.
- Look for jobs that offer student loan repayment assistance programs or student loan forgiveness.