Statistics from The College Board show that in 2010-11, 57 percent of public four-year college students graduated with debt averaging $23,800. With student loan debt growing to almost $1.2 trillion, according to the Consumer Financial Protection Bureau (CFPB), there is no better time to cut your own student debt than while you are still in school, before you’ve taken the loans.
Once you’ve taken loans, you’ve paid the origination fees and the debt is yours. Upon graduation, the debt will begin to grow even faster as interest on all types of student loans adds to the unpaid balance. And, it sticks with you until fully paid as student loan debt of any kind usually can’t be discharged, even in a bankruptcy.
“Student debt is likely the biggest debt you will ever take on besides a mortgage,” says Rachel Cruze, daughter of debt-free guru Dave Ramsey and speaker on student debt. “Since you are the one ultimately signing on the dotted line, you must understand how the the different loans work and how the amount you borrow can affect you after you graduate.”
Cruze advises your main focus should be on your studies and staying in school, but you should also do everything you can to minimize the amount you are borrowing. It is especially important when using unsubsidized government student loans or private student loans which begin charging interest as soon as you receive the money in school versus lower-interest rate subsidized government student loans which are used interest-free during college.
Think hard about your future repayment of student loans and use these ways to borrow less while you are still in school.
Take out fewer loans
“If you are a first-time freshman, take the full amount offered in your financial aid package,” advises Reyna Gobel, author of CliffsNotes Graduation Debt, fully updated in its second edition. “Once you see what the true costs are and how the loans are applied, you can opt to reject future loans and look for ways to borrow less in subsequent semesters.”
Gobel advises under-used free financial counseling services available at your college. The financial aid or money management office can guide you on the different student loan types, work-study programs and any local and school-specific scholarships that are available to you. The career services office may be able to help you determine appropriate loan amounts based on your chosen major, possible jobs and income outlook.
Both experts agree on avoiding the use of other types of credit such as car loans or credit cards which will only pile on to your student loan debt.
Earn more scholarships
Cruze says scholarships are just like cash. “Every $1,000 earned in a scholarship is $1,000 less you have to borrow and pay back over 10 or more years after you graduate.”
She says to find and apply to as many scholarships for higher grades, athletics, personal or career interests and ethnicity offered by local associations, private companies or offered from your college to put toward your costs.
In addition to checking your school’s Financial Aid office, scan the scholarship listings from The College Board. Cruze advises checking every semester and applying for any newly eligible scholarships.
Use apps and online services to organize bills
According to a new report from the CFPB, some student loan servicers may be charging borrowers several kinds of unwarranted fees. Good record-keeping about any early payments you make during school, any repayment plans and all payment dates is important in challenging unwarranted fees that may cause your student loan balances to grow instead of shrink.
Another way to stay ahead of fees is to never miss a student loan payment or pay late. Set up email or text alerts to go directly to your smartphone from a free online service that organizes all your bill due dates and accounts and even keeps records of bills and payments, including those for student loans.
Pay cash whenever possible
Student loan money should never be used for financing fancy apartments, shopping trips or partying while you are in school, says Cruze. “You want to figure out how to take fewer loans and use less money each semester, not take and use every loan offered when you really don’t need it.”
If parents can help by paying what they can afford and you can pay some by participating in a work-study program or getting a part-time job, ask your school about a monthly cash payment plan to help cut borrowing, says Cruze.
Both experts agree on keeping a cash stash as an emergency fund of at least $500, to avoid leaning on credit cards or your student loans for emergencies and unplanned expenses such as an unusually expensive text book, car repairs or a medical or dental visit.
“You may not realize it now, but your future self will thank you for borrowing less during school, when you’re not saddled at your first real career job with repaying as much in total student loan debt,” says Cruze.
Use the Federal Student Aid website’s Repayment Comparison Calculator for an eye-opener on how much and how long you’ll be repaying student loans versus the borrowed amount, simply depending on the interest rate.
About the Author:
Naomi Mannino has been writing and reporting on personal finance and health for over 15 years. She specializes in finding and speaking to cutting edge industry experts for the most current advice and useful information as well as how the day’s financial and health news might affect you. She earned her Bachelor’s Degree in Marketing with a minor in Consumer Behavior from Pace University in New York City. She is a contributor to several websites, including Schools.com.
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