Student debt is real, and so is the high cost of a college education. But learning how to borrow prudently and pay off debt responsibly is all part of growing up. Many students manage to complete college without taking out loans. Other students borrow, but create strategies for paying off loans without defaulting on them. CNBC reports that in 2015, Americans owe $1.3 trillion in outstanding student loans. But the fear of debt is hardly a sufficient reason for skipping college or to avoid student loans entirely.
First, look at the numbers: U.S. News reports that some 70 percent of 2013 college graduates carried, on average, $28,400 in debt. Some 40 million Americans still owe money for college, and CNN Money reports that “carrying tens of thousands of dollars in student loan debt has become the new normal.”
The College Board sets the average annual cost of attending a four-year private college or university in the U.S. for 2015 at $42,000. That tallies to $168,000 for a bachelor’s degree. Of course, students can save money by taking their first two years in a community college, or by shopping for degree programs with competitive tuition. The first thing for students to understand that there are ways to minimize the full amount they need to borrow without compromising on the quality of their higher education.
Strategies to Minimize Student Debt
The time to develop a game plan for averting crippling debt arrives long before the first day on campus. Parents can participate in a tax-advantaged investment program called a 529 plan to put money away for their children’s education. The 529 varies by state and typically offer savings or prepaid tuition plans to lock in the tuition rate. Students who have not saved for college or receive support from their families have plenty of options for reducing the total cost of tuition. Here are two good ones:
Go Shopping for Schools
It’s important for students to evaluate the tuition and curriculum at colleges offering programs that match educational objectives. Private colleges typically charge the highest tuition, followed in descending order by non-profit schools, state colleges and universities, junior and community colleges.
Apply for Non-loan Student Aid
Students are encouraged to complete the Free Application for Federal Student Aid (FAFSA) to determine eligibility for grants, scholarships, and work/student programs. Typically, independent students receive higher amounts in aid than students supported by their families. Also consider part-time employment that won’t substantially interfere with progress on the degree.
Keeping Student Debt In-Check
Student loans are not the end of the world if they’re managed intelligently. Students that qualify for federally backed student loans for undergraduate and graduate work benefit from low interest rates and a grace period following graduation. However, private loans may have higher rates and repayment requirements. Federal loans have different grace periods. For example, a federal Perkins loan carries a nine-month grace period from the date of separation from college. A Stafford loan has only a six-month grace period. Students who ignore the terms for the grace period and pay-off schedule do so at their own peril.
Federal loans are typically issued with a 10-year repayment plan. Student borrowers may want to look into Pay-as-You-Earn or Income-Based Repayment plans that establish a cap on federal school loan monthly payments to help ease the student debt burden. Remember: following nine months of non-payment, federal loan recipients are considered to be in default, ruining their credit, facing wage garnishments, and losing any tax refunds.
Students with hardships that have not defaulted on loans can also look into programs for deferments. Acceptable reasons for postponing payments include entering military service, unemployment (maximum of three years), returning to college for an advanced degree, or national volunteer service. There is also a federal loan forgiveness program for graduates that have worked for ten years in jobs in government, nonprofit, and other public service fields including education.
Students should also know that it’s straightforward process to refinance their student loans or complete a debt consolidation if it becomes necessary. Find the best rates by comparing offers at LendingTree. Finally, the best advice for students:
- Plan carefully
- Borrow only what you need
- Pay down the highest loans first
- Pay on time and keep in touch with your lenders.