College is expensive. But the hard truth is that in many industries and fields you are much more likely to both gain employment and advance if you have a college degree. Nevertheless, you won’t be surprised that the ever-increasing cost of college tuition has created a world where crippling student debt is the reality for many college graduates. For many of these former students — and their families — their debt hangs threateningly over their heads like Damocles’ fabled sword.
Also unsurprisingly, the best way to minimize the painful effects of student debt, is to first strive to minimize student loan amounts in the first place. At
HESAA, We have compiled this list of ways to do just that.
1. Take Advanced Placement (AP) Classes
Advanced Placement (AP) courses are designed to allow high school students to receive a range of college credits before graduating from high school. By taking advantage of these courses, you or your student can actually start college with credits already in place. These credits help fill college prerequisite and graduation requirements and allow you to pay for fewer classes at the college tuition level.
2. Consider a Starting at a Community College
Generally speaking, 4-year degrees require a range of general education courses as part of their curriculum. A cost-effective way to work toward your degree is to start at a community college. These schools offer most general requirement courses at a significantly lower rate than full universities. By taking these courses at a community college before transferring to the college or university of your choice, you can save quite a bit of money.
3. Choose an Affordable College
Every student dreams of being able to choose the best school with the best program for their major. In reality, however, that’s not always practical. Choosing a school that has a quality program in your field of study that is also affordable is one of the best and easiest ways to limit the amount of student loans you will need. When researching the cost of a school, don’t forget to include room, board, and other living expenses in the total cost of attending.
4. Choose an In-Demand Major
When you were a child, you probably didn’t think much about how much money you could make when you were asked, “What do you want to be when you grow up?” However, as a prospective student or a current student, majoring in a subject that is in-demand in the job market is crucial to graduating with a degree that can help you get a job that will allow you to support yourself, support your family, and pay back any student loans you incurred while pursuing your degree.
5. Utilize Savings, Scholarships, and Grants
If your family has been able to save for your college education, you’ll find yourself at a good starting point. 529 College Savings plans, like the
New Jersey Better Educational Savings Trust (NJBEST), are one of the best ways to save for tuition. These “qualified tuition plans,” as they are legally known, can offer special tax benefits. Earnings in a 529 plan are not subject to federal tax, nor are they subject to state tax in most cases.
In addition to college savings, scholarships and grants can greatly reduce the amount of student debt you incur. One of the best things about both grants and scholarships is that they are essentially “free” money because they do not have to be paid back.
Filling out your FAFSA (Free Application for Federal Student Aid) will tell you if you qualify for federal grants like
Pell Grants or
Federal Supplemental Educational Opportunity Grants (FSEOG). Additionally,
FastWEb.com is a great resource for scholarships and grants that you can apply for depending on your high school grades and personal successes. Other places to look for scholarships include:
- Each College or University You Are Interested In,
- Local Foundations, and
- Local Community groups.
6. Limit What You’re Borrowing Money For
There are many aspects of college life that cost you money, including: tuition, books, supplies, housing, food, etc. Nevertheless, whenever possible, you should borrow money for as few expenses as possible. Even if you are able to use grants and scholarships to cover part of your expenses, borrowing for too many expenses can add up quickly.
Let’s look at an example to illustrate this. In our example, two students are attending an art school that costs $30,000 in tuition for a two year degree.
Student A: Has a
$30,000 scholarship through the school that covers their tuition. However, they borrow $1,200 per month for books, supplies, and living expenses. Over the two years, they accumulate
$28,800 in student debt.
Student B: Has
$10,000 in grants and scholarships that goes toward their tuition. They choose to live with family and work a part time job to cover the costs of books, supplies, and food. Over the two years they accumulate
$20,000 in student debt.
As you can see, limiting what expenses you borrow money for can make a real difference in how much debt you accumulate.
7. Work While You Study
As shown with Student B in our example above, working a part-time or full-time job while you’re in school can help you cover some of your expenses. The key is to find the balance of how many hours you can work without experiencing a negative effect on your studies. For some, the best balance is to go to school full time and work part time. For others, the solution is to work full time and take a few courses each term. There is no one, right answer, but balancing school and work can really help you limit how much money you have to borrow for your education.
8. Apply For Federal Student Loans First
As their name suggests, Federal Student Loans, are funded by the Federal Government. They offer a variety of benefits over private loans, including:
- Lower Interest Rates
- Deferral of Repayment While in School
- Tax Deductible Interest (in some cases)
- Possible Options of Deferral or Forbearance During Repayment
Because of these benefits, it is a good idea to see if you qualify for any Federal loans before looking at private loan sources for student loans.
You should understand that there are two main types of Federal Student Loans, subsidized loans and unsubsidized loans. On subsidized loans, the Federal Government pays the interest while the loan is in its initial deferral stage. Unsubsidized loans, on the other hand, begin accruing interest as soon as the loan is taken out. It is often beneficial to make “interest only” payments on unsubsidized loans while in school in order to maintain lower principal loan amounts.
9. Carefully Evaluate Private & Supplemental Loans
Not all loans are created equal. If you find yourself in need of private or supplemental loans, make sure that you carefully evaluate all aspects of each loan before signing. Keep in mind that some states offer supplemental loans to help students from their states or who are attending school in their state. For example,
New Jersey offers New Jersey College Loans to Assist State Students (NJCLASS) to New Jersey residents who choose to attend qualifying in-state or out-of-state schools as well as to out-of-state students who plan to attend a school in New Jersey.
Here are a few of the details you should look at when choosing a private or supplemental student loan:
- Interest Rates, including if they are fixed-rate or variable-rate loans
- Term of the Loan(s), i.e. how many years you will be repaying the loan(s)
- Presence of Early Payoff Penalties
- When Repayment Begins
- If "Interest Only" Payments Can Be Made Before Repayment Begins
10. In Short, Don’t Borrow Exorbitant Amounts
All of the above tips funnel to this one: accrue as little student debt as possible. If you find that you need to borrow money to make your college dream come true, make sure that you aren’t selling your future to do so. In general, borrowing more than you can reasonably expect to make as your starting salary after graduation is a bad idea. You should know that students who borrow more than twice what they can expect to make as their starting salary will be at high risk of default.
Bonus Tip: Avoid Defaulting On Your Loan(s)
If at all possible, avoid defaulting on your student loans. Defaulting on your loans has different consequences for different types of loans, but the consequences can ruin your credit score for years and result in paying a significantly higher amount once late fees and interest are taken into consideration. While consequences vary widely for defaulting on private loans, some of the consequences for defaulting on Federal Student Loans can include:
- The entire unpaid balance and accrued interest becoming immediately due
- Loss of eligibility for forbearance, deferment, and repayment plans
- Your loans being sent to a collection agency
- Wage garnishment
By limiting the amount of student debt you acquire, you can put yourself in the best situation possible to avoid defaulting on your loans and setting yourself up to repay your loans on time.
