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16 Ways to Reduce & Avoid Overwhelming College Student Loan Debt

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Student loan debt can be a heavy load to carry for recent graduates. Data in 2018 from The Institute for College Access and Success shows that average student debt for college graduates continues to climb. Nationally, about 65% of college seniors who graduated from public and private nonprofit colleges in 2018 had student loan debt. These borrowers owed an average of $29,200, which is 2% higher than the 2017 average.

Unfortunately, 40% of borrowers will default on their school loans by 2023. Meanwhile, the job market remains stagnant, leaving graduates unemployed or underemployed

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When it comes to avoiding immense amounts of debt, an ounce of prevention is worth a pound of cure. There are a number of things you can do before you start college, during your college years, and after graduation to keep your debt burden as low as possible.

Before You Start School

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Ideally, you should start thinking about how you’ll pay for college years before you apply to a single school. Follow these tips to minimize your potential student loan debt.

1. Get a Job and Start Saving Early

One of the best ways to get money for college is to get a part-time job after school, on the weekends, or (at the very least) during your summer breaks.

How old you have to be to work depends on where you live and the type of job you’re considering. Generally, there are no age limits for jobs such as delivering newspapers, babysitting, doing chores in a private home, or working for your family’s business (as long as it’s not doing something hazardous).

States have different age requirements, so double-check before you start applying for jobs. Some employers prefer to hire people over the age of 16, in part because there are strict rules regarding how long and how late 14- and 15-year-olds can work.

Once you get a part-time gig, it’s important to start saving your money. Determine how much of each paycheck will go toward college savings and how much you’ll keep for your expenses, such as the cost of getting to work, and for entertainment or recreation. When I was a teenager, my parents made me save 50% of all my income from my part-time job, which I put in a money market account with a high interest rate. I really didn’t like it at the time, but it was nice to have a considerable sum set aside by the time I was ready to go to college.

Think carefully about where you stash your college savings. You have several account options, each with their own benefits and drawbacks:

  • Coverdell Education Savings Account (ESA). Any money you deposit into a Coverdell ESA is after tax, meaning you don’t get to deduct the amount from your annual tax return. However, when it’s time to use the money to pay for college, you don’t have to pay additional taxes on the original contribution amount or the earnings. The downside of an ESA is that your contributions are limited to $2,000 per beneficiary, per year. Money in an ESA must be used to pay for qualified education expenses, such as tuition and room and board.
  • 529 College Savings Plan. 529 plans are often operated by a qualified state or university. They offer tax advantages, such as no federal tax on earnings, and in some instances, state income tax deductions. The contribution limit for a 529 plan depends on the plan you choose, but it’s usually considerably higher than the $2,000 yearly limit for a Coverdell ESA. Money you contribute to a 529 plan is meant to be used to cover the cost of tuition and other school-related expenses, such as supplies and equipment, books, and computer software.
  • Standard Savings Account. You might choose to deposit your college savings in a standard savings account. While you miss out on the tax advantages of a Coverdell ESA or 529 plan, you won’t be limited to using your money only to pay for school. This could come in handy if you end up changing your mind about going to college. Savings accounts don’t always have the best rate of return, but since they’re federally insured, they’re a low-risk way to save for school.
  • Roth IRA. A Roth IRA is intended for use in retirement, but there’s a loophole that lets you utilize withdrawals from your Roth IRA as long as you don’t exceed your higher education expenses for the year. However, bear in mind that although you can make penalty-free withdrawals, you’ll still be on the hook for income taxes on the earnings portion. Roth IRAs can be opened with most online brokers like M1 Finance.

2. Give High School Your All

A professor once told me if a program doesn’t lavish you with scholarships and funding, they don’t really want you. He was talking about graduate school, but the thought applies to undergraduate programs too. It’s up to you to make the schools you apply to really want you.

That means preparing for the SAT or ACT so you get the highest score possible or taking the tests several times to get the best score possible. It also means challenging yourself in school to achieve the highest grades you can. If your grades are flagging, enlist the aid of a tutor and talk to your teachers about possible extra-credit assignments.

When it comes to extracurricular activities, you want to be well-rounded but not too scattered. Don’t sign up for every club, since you can’t possibly commit to everything. Choose the two or three activities that interest you most and focus on excelling in those areas. If you’re really good at a sport, you might land an athletic scholarship. The same is true for music, art, and theater. If you can rack up numerous scholarships and grants, the cost of your college education can drastically drop off.

3. Get College Credit Without Paying for College Classes

If your high school offers advanced placement (AP) courses, take as many as you qualify for and be sure to take the AP exam offered at the end of the year. Although the rules and requirements vary from school to school, many colleges offer course credit in exchange for a high score on the AP test.

You may not have to take college-level introductory math, science, language, or writing courses if you score above a 4 on your AP tests. Depending on how many exams you ace, you might be able to skip an entire semester of general education courses, shaving a considerable amount off of the total cost of your education.

4. Fill Out Your FAFSA as Soon as Possible

Even if you think you and your parents earn too much money to qualify for need-based financial aid, it doesn’t hurt to fill out the Free Application for Federal Student Aid (FAFSA). You can fill out the application before you’ve decided which school to attend. In fact, completing it before you make your decision can help you weigh the aid different schools offer.

At one time, you couldn’t submit your FAFSA until January 1 of the year you planned to start school. However, online applications for the 2019 to 2020 FAFSA must be submitted by midnight, Central Time, June 30, 2020. Keep in mind each state has different deadlines, so check with your state to make sure you don’t miss it. Each college may also have a different deadline, so it’s a good idea to check with your preferred schools too.

A few days or weeks after you submit your FAFSA, you receive what’s called a student aid report (SAR). Your SAR will inform you whether you qualify for a federal grant, such as the Pell Grant, or if you qualify for work-study and other federal aid programs. It doesn’t tell you the actual amount of aid you qualify for, as the school determines that.

Some schools have more funding than others, and that funding is often limited. The sooner you file your FAFSA, the sooner the schools you apply to are able to tell you which type of aid package you qualify for. If you wait too long to file, all the grants and work-study funding available at your top-choice schools may no longer be available.

5. Look High and Low for Scholarships

You’re not limited to the scholarships offered by the schools you apply to.

Many organizations — such as nonprofit volunteer clubs, religious organizations, and civic groups — offer scholarships to outstanding students or students who meet certain criteria. Check with your bank or credit union, your parents’ employers, and organizations dedicated to the field or industry you’re interested in studying. Start with a simple Google search, by visiting a financial aid officer at the colleges you’ve applied to, or by speaking with your high school guidance counselor.

6. Rethink Your Choice of College

You might dream of attending a pricey Ivy League school, but you may not be able to cover the costs without taking on a lot of loans. If that’s the case, it may be worth reconsidering your choice of school. Getting a degree from an Ivy League school might have some clout, but you have to ask yourself whether getting a designer degree is worth falling deep into debt.

If the cost of school is just too high, you have some other options:

  • Go to a Community College, Then Transfer. Community colleges offer an affordable way to start your college career. You can attend a local community college for a year or two and then transfer to the college of your dreams, obtaining a high-end college degree at a major discount. Just make sure all the credits you’ve earned are transferable from the community college to the college you want to attend.
  • Attend a State School. Public universities and colleges tend to be more affordable than private schools because they receive financial support from their state government. If you go to a public school in the state in which you live, you’ll likely pay less than if you attend a private school or out-of-state institution.

7. Avoid Private Student Loans

The federal student loan program limits how much you can borrow each year. You can borrow up to $5,500 from the federal direct subsidized loan program as an undergraduate and up to $20,500 from the unsubsidized direct loan program, less any subsidized amounts you receive for the same period, depending on your grade level and dependency status. For a Direct PLUS Loan, you can receive the maximum amount of the cost of college attendance, minus any other financial aid you receive. This amount is determined by the school.

Although you want to keep your borrowing low when you take out federal loans, their protection programs can offer you the ability to defer if you lose your job, go back to school, or sign up for the Peace Corps, as well as a variety of income-based repayment plans, making them preferable to private loans.

Private student loans don’t have such limits, which makes it easy to get in over your head with them. They also tend to have higher interest rates than federal loans and frequently don’t offer flexible repayment plans or the option to defer your loans if you’re out of work or go back to school.


When You’re in School

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You’ve chosen your college carefully, and you’ve gotten grants, scholarships, and minimal loans to cover the first year of school. Now your concern is not getting into a lot of debt during your remaining years of college. There are several ways to keep student loans from piling up, even after four years of studying and a well-deserved degree.

8. Work Part-Time

Whether or not you receive a work-study offer from your school, you can still pick up a part-time job during the academic year to help pay for your expenses. You might even land a paid internship, which will help you develop skills relevant to your chosen career.

Working a part-time job rather than taking part in a work-study program may have several advantages. You may be able to fit the job into your schedule more easily, and, if time allows, you may be able to work more (and therefore earn more). Many work-study jobs have an earnings cap, meaning your potential income is limited.

9. Take a Semester Off

Depending on your financial situation, it might make sense to take a semester off to work full-time and save up more money. It’s not an ideal situation, but it can be a lot better than taking out thousands of dollars in private loans, which you’ll need to pay back with interest.

10. Keep Filing Your FAFSA

The FAFSA isn’t a one-and-done deal. You need to file one for every school year, reflecting your current income and financial status. File it early each year to get the best shot at receiving the best financial aid package

11. Make a Budget

Having a reasonable idea of how much you’re spending per month compared to how much you’re earning can help you avoid taking out more loans to cover unexpected costs. Creating and following a personal budget when you’re still in college also helps you learn the basics of money management, which will serve you well throughout your life. There are several budgeting tools available for free or little cost each month. Two of my favorites are Tiller and Personal Capital.

12. Avoid Credit Cards

Credit card debt, with its high interest rates and fees, can be even more expensive than student loan debt. If you’re likely to graduate with some student loan debt, it’s best not to add pricey credit card debt on top of it.

13. Find Ways to Reduce Your Costs

Look for ways to cut your costs while in school to reduce the need to borrow money. If you must get a meal plan at school, purchase the cheapest option, then supplement your dining hall meals with food you purchase at the grocery store. Buy used textbooks, check them out of the library if you can, or share pricey books with friends taking the same class. Freshen up your wardrobe by having clothing swaps with friends or classmates or by shopping at a nearby thrift store.


After You Leave School

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Even if you earn grants and scholarships and work part-time during college, it can still be difficult to completely avoid taking out any student loans. So once you leave school, it’s important to have a plan in place to pay off your loans and avoid defaulting.

14. Pick Your Repayment Plan

The federal student loan program offers a variety of repayment plans designed to reduce some of the strain of making monthly student loan payments. Each plan is different and depends on your overall student loan debt.

A variety of income-driven repayment plans determine your monthly loan payment based on your income. If you’re not earning much right out of school, income-driven repayment plans can help make your payments more manageable in the short term, though you may end up paying more over time.

15. Look Into Forgiveness Programs

The federal loan program has a number of loan forgiveness programs, meaning you no longer have to pay your loans after a certain amount of time, provided you meet certain requirements. Not every loan is eligible for forgiveness, and it often takes several years before you qualify. There are also some careers that offer student loan repayment or forgiveness.

Here are several of the programs available:

  • Teacher Loan Forgiveness. The Teacher Loan Forgiveness Program is open to teachers who teach full-time in an elementary or secondary school for at least five consecutive years. The school you work for must serve low-income students, qualify for Title I funding, and be listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits. Up to $17,500 of your loans can be forgiven under the program, based on the subject you teach.
  • Teacher Loan Cancellation. If you have a Perkins loan, up to 100% of your loan balance can be canceled, meaning you don’t have to pay it back if you teach in a low-income school, teach special education, or teach a subject with a shortage of teachers, such as math, science, foreign languages, or bilingual education. You need to teach full-time for one full academic year to qualify. Up to 15% of your Perkins loan can be canceled during your first and second years of teaching, up to 20% can be canceled during your third and fourth years, and up to 30% can be canceled during your fifth year as a teacher.
  • Public Service Direct Loan Forgiveness. If you have a public service job (such as working at a nonprofit or government organization) for 10 years and make 120 on-time payments on your federal direct loans, the remaining balance on your loans can be forgiven. Your loans must be on a qualified repayment plan.
  • Other Perkins Loan Cancellation Options. If you have Perkins loans and participate in certain public service activities or work in certain occupations, some of your loan balance can be canceled for each year of service. For example, up to 70% of your loan balance can be forgiven if you serve with the Peace Corps or Americorps VISTA programs. Up to 100% of your loan balance can be forgiven if you work as a librarian at a Title 1 school or at a library that serves students from Title I schools. Attorneys working in public interest fields, full-time employees at Head Start programs, and full-time employees at family or child services agencies can also have up to 100% of their Perkins loans canceled.

16. Work a Side Gig

If you want to get out of debt quickly, but aren’t earning a lot at your primary job, one option is to get a side gig to boost your income. It can be anything from sharing your car on Turo to delivering groceries through Instacart to selling crafts on Etsy. As long as the income from your full-time job is enough to pay your bills and add to your savings, you can put all of the income from your side gig toward your student loans.


Final Word

According to the College Board, the average cost of attending a public four-year college program ranges from $9,410 per year for tuition at a public four-year in-state school to $32,410 per year for a private four-year college. Those staggeringly high prices make it almost impossible for many students to avoid student loans. Still, with some planning in the years before school, careful budgeting while you’re in school, and smart moves after college, your student loan debt doesn’t have to get the better of you.

What are you doing to avoid major student loan debt?

Kathryn Pomroy
Kathryn Pomroy is a professional writer with knowledge and experience in personal finance, consumer banking, credit cards, investments, and loans. She has written for dozens of major publications, small businesses, and many well-known personal finance companies. Kathryn holds a BA in Journalism.

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