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16 Ways to Reduce & Avoid Overwhelming College Student Loan Debt

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Student loan debt can be an albatross around the neck of recent graduates. Although the number of students with debt didn’t increase by much between 2004 and 2014, the amount of debt held by students did, according to the Institute for College Access and Success. About 69% of 2014 graduates from public and nonprofit universities and colleges had debt, compared to 65% in 2004. The average debt held by 2014 graduates was $28,950 per borrower, an increase that was twice the rate of inflation.

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

Before You Start School

Ideally, you should start thinking about how you’ll pay for college years before you apply to a single school. Perhaps your parents started setting money aside for you when you were young – but even if they haven’t, there are still ways 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 or on weekends or – at the very least, during your summer breaks. Getting a job has other benefits too, such as gaining a sense of responsibility and learning how a business works.

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 in place on jobs such as delivering newspapers, babysitting or doing chores in a private home, or working for your family’s business (as long as it’s not doing something hazardous).

To get an official, paying job – such as at a restaurant or store – you usually need to be at least 14, according to federal law. Some states have different age requirements, so double-check before you start applying at various businesses. 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. You can’t work before 7am or after 7pm on school nights, can’t work more than 18 hours per week, and can’t work more than three hours per day during the school year.

Once you get that part-time gig, it’s important to actually save your money. Before you get a job, 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 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 was pretty nice to have a considerable sum set aside by the time I was ready to go to college.

You might also want to think carefully about where you stash your college savings. You have several account options, each with their own benefits and drawbacks:

  • Coverdell 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 on the earnings. The downside of an ESA is that your contributions are limited to $2,000 per beneficiary, per year. Money in an ESA needs to be used to pay for qualified education expenses, such as tuition and room and board.
  • 529 Plan. 529 plans are often operated by a state or by a university. They offer tax advantages, such as no federal tax on earnings and state income tax deductions, in some instances. The contribution limit for a 529 plan depends on the plan you choose, but is usually considerably higher than the $2,000 yearly limit for the 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.
  • Standard Savings Account. You might choose to deposit your college savings in a standard bank savings account. While you miss out on the tax advantages of a Coverdell ESA or 529 plan when you pick a basic savings account, you also aren’t limited only to using your money to pay for school, should you end up changing your mind about going to college. Savings accounts usually don’t have the best rate of return, but since they are federally insured, they are also a low-risk way to save for school.
  • Roth IRA. A Roth IRA might be intended for use in retirement, but there is a loophole that lets you withdraw and utilize up to $10,000 from it, penalty-free, for higher education. If you’ve had the account open for more than five years, you do not have to pay income on the earnings you withdraw to pay for school. Since you already paid tax on your original contributions, you don’t have to pay it again when you withdraw the money.

high school students

2. Give High School Your All

A professor once told me that if a program didn’t lavish you with scholarships and funding, they didn’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 that 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, so that you 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 most interest you 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, or theater. If you can rack up numerous scholarships and grants, the cost of your college education can drastically plummet.

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 (the highest possible score is 5) 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 you’ll attend – and in fact, completing it before you make your decision can help you weigh the aid offered by one school against the aid offered by another.

It used to be that you couldn’t submit your FAFSA until January 1st of the year you planned to start school. However, as of the 2017-2018 academic school year, the submission start date has moved to October 1st of the preceding year. That means, for example, that you can file your FAFSA on October 1, 2016 for admission in Fall 2017.

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 does not tell you the actual amount of aid you qualify for, as that is determined by the school.

Some schools have more funding than others, and that funding is limited. That’s why it is important to get your FAFSA in early. The sooner you file it, the sooner the schools you have applied 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

Some schools automatically give scholarships to students based on their GPAs or extracurricular achievements – but don’t think you’re limited to the scholarships offered by the schools to which you apply.

Many organizations – such as nonprofit volunteer clubs, religious organizations, and civic groups – offer scholarships to outstanding students, or to students who meet certain criteria. For example, you can check with your bank or credit union, your parents’ employers, or an organization dedicated to the field or industry you’re interested in studying. Start your scholarship search 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 counselors.

college application

6. Rethink Your Choice of College

You might really want to attend a pricey Ivy League school, but can’t cover the costs without taking on a lot of loans. If that is 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.
  • 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 between $5,500 to $12,500 from the federal direct loan program as an undergraduate, and up to $5,500 per year from the Perkins loan program (as of the 2016-2017 school year). Although you do want to keep your borrowing low when you take out federal loans, 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, or a variety of income-based repayment plans, making them preferable to private loans.

Private student loans don’t have such limits, so it’s very easy to get in over your head. They also tend to have higher interest rates than federal loans, and frequently do not offer flexible repayment plans or the option to defer your loans if you are out of work or back in school.

When You Are in School

You’ve chosen your college carefully and have gotten grants and 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.

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. If you can land a paid internship, which helps you develop your skills, even better.

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.

young waitress college

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. This isn’t an ideal situation, obviously, 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.

12. Avoid Credit Cards

Credit card debt, with its high interest rates and occasional 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 who are taking the same class. Freshen up your wardrobe by having clothing swaps with friends or classmates or by shopping at a nearby thrift store.

college students dining

After You Leave School

Even by earning grants and scholarships and working part-time during college, it can still be difficult to completely avoid taking out any student loans. Once you leave school, it’s important to have a plan in place to pay off your loans and to avoid defaulting, which can happen if you don’t pay your loans on time. Depending on your career path, it might be possible to find work that allows you to cancel some of the balance on your loans.

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. Under the standard repayment plan, you pay a fixed amount each month so that your loan is paid off in 10 years.

However, a variety of income-driven repayment plans determine your monthly loan payment based on your income. If you’re not earning much right 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 also 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. Generally, forgiveness programs are available to people who work in nonprofit settings or in areas that focus on improving the greater good.

Here are several of the programs available:

  • Teacher Loan Forgiveness. The teacher loan forgiveness and cancellation program is open to people who first took out loans after October 1998. To qualify for forgiveness, you need to teach full-time in an elementary or secondary school for at least five consecutive years. The school for which you work 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 in which there is a shortage of teachers, such as math, science, or a foreign language. 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 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 of your federal direct loans, the remaining balance on your loans can be forgiven. Your loans must be on a qualified repayment plan, including income-driven plans and the standard 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.

math teacher

16. Work a Side Gig

Loan forgiveness programs can be helpful, but are only open to people in public service positions. They also  take years to kick in. For example, you need to make 120 payments and work for a decade before your loans are forgiven under the Public Service Loan Forgiveness program.

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 knitting and selling crafts on Etsy, to working a few shifts per week at clothing store in the mall.

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. Depending on the size of your loans and the amount you earn, you can end up paying off all your student debt in just a few years, instead of requiring 10 (or more).

Final Word

According to The College Board, the average cost of college ranges from $9,410 per year for tuition as an in-state student at a public school, to $32,410 for tuition at a private, four-year school. Those staggeringly high prices might make it almost impossible 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 won’t get the better of you.

What are you doing to avoid major student loan debt?

Amy Freeman
Amy Freeman is a freelance writer living in Philadelphia, PA. Her interest in personal finance and budgeting began when she was earning an MFA in theater, living in one of the most expensive cities in the country (Brooklyn, NY) on a student's budget. Today, she writes for a number of websites and keeps up her own blog, Shopping and Sewing.

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