Tips on Managing and Avoiding Student Loan DebtPosted: December 21, 2012
We’ve addressed the issue of U.S. student loan debt in previous posts, but here’s a fresh take. After maxing out on student loans in pursuit of a college degree, many college students find themselves with more debt than they can handle upon graduation. Here are some suggestions that should help tackle this problem.
Unfortunately, student loan debt is already causing major problems in today’s economy, and these problems continue to grow. The Federal Reserve Bank of New York announced that the current student loan debt is a sobering $956 billion, and the rate of those who fail to pay has reached 11%. Consider the damage done to the economy when 16% of subprime mortgage holders refused or were unable to pay – non-payment of student loans could have similar effects.
But the outlook doesn’t have to be bleak. With focus and hard work, you can become a graduate who holds little to no student debt. How can you manage your money to earn your degree with as little debt as possible? There are many ways, and we have outlined them below:
- Save Early: If possible, parents should start a college fund for their children when the child is born – or even before! You should add to it when you can as well. A healthy savings account can eliminate the need for additional student loans or debt accrual to purchase things like books, pay rent, and other college necessities. If you save enough, a college fund may even cover most if not all of the tuition, depending on the institution.
- Avoid Accruing Debt: Yes, accruing some student loan debt may be unavoidable for some. But you can keep the amount of debt you accrue to a minimum. When accepting your student loans, think about how much money you will actually need. Often, it is significantly less than the maximum loan amount offered. It can be tempting to take all the money that’s offered, but think of your future self and how hard you will have to work to repay it. You can reduce the amount you accept – and be sure to reduce the amount of unsubsidized loans first. The federal government will pay the interest on any subsidized loans you receive, but not so for unsubsidized loans. Additionally, spend money mindfully and take care to limit purchases to necessities.
- Earn Money: One surefire way to avoid increasing your debt is to earn money. Getting a part-time job in college can help offset some of the future debt. Many students are lucky enough to have parental assistance or a savings account to pay bills and other expenses while in college. Even if this applies to you, don’t overlook the benefits of a part-time job. Not only can you start saving money to build a cushion for when you graduate, but you’ll also be learning job skills that could make you a more desirable employee when you do graduate.
- Take Advantage of Opportunities to Save: Many advice columns offer oh-so-sage advice like giving up a daily coffee to save $20 a week. While that advice might be good for some, it’s not addressing the larger problem of budgeting and saving. For college students, there are many ways to avoid taking on even more debt. This could include taking some courses at a cheaper community college (just make sure the credits will transfer), doing without certain extravagances, and applying for scholarships. Many scholarships are awarded yearly, so it’s not too late even if you’ve been in school for a while. Be diligent about researching and applying for any scholarships, awards, and other monetary prizes you can think of – with hard work, you might be surprised at how many you are eligible for.
- Research Carefully: Many students fall into the trap of chasing a degree they really can’t afford. Think about what your ultimate goals are. Keep in mind that it’s you, not your alma mater, that employers will be hiring. Decide if the program and what you will be learning is worth the price. Don’t fall into the “designer degree” trap and wind up with a degree from a well-known school, mountains of debt, and job prospects that aren’t any brighter than people who chose to attend more affordable, but lesser-known schools.
These are just a few ways you can combat the student loan issue on a personal level. But living debt-free requires attention and care to all aspects of your spending – so start being mindful now.
For more information visit Education at Work’s website.