7 Tips to Minimize Student Loan Debt
Heading off to college is not all rainbows and unicorns. Whether you’re just beginning the hunt for your post-high school education or are a recent college graduate (or somewhere in between), odds are pretty good that you’ll have to take out student loans at some point. Recent statistics show that 69% of 2018 graduates took out student loans, graduating with an average debt of $29,800.
Those stats are enough to scare any future student—or parent! But … not to worry. We have a few tips to help you keep more of your money.
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Don’t forget about free money.
Before you look into taking out an education loan, check into your prospects for scholarships, grants and financial aid. There are so many opportunities for students to receive free money, and they don’t all have to do with academic prowess. All it takes is a little research.
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Borrow within your means.
As a new college student, you’re usually not making much, if anything, when it comes to a salary. If you’re going to borrow, make sure you know what you can afford. Some experts advise borrowing no more than one year’s salary of the job you expect to have after you graduate. This requires a little bit of forward thinking: start with the salary you think you’ll make, then create a sensible budget, including your minimum student loan payments. Does this seem doable? Will you be able to afford everything you need? If not, you may need to strategize your college plan differently or secure additional funds.
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Look at cost vs. benefits.
Let’s face it—tuition is expensive. Up to $250,000 for a four-year degree! If money is a concern, consider all your options—it may surprise you how many lower-priced schools get top overall marks. Even so, your education will likely be the most expensive investment you make, aside from your home.
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Use your borrowed money for its intended purpose.
When you have a lump sum in your account, it’s tempting to use it for things other than school expenses. Remember, that money comes with interest—so using it will cost you. If you need extra money for living expenses or extracurricular fun, focus on finding more scholarships/grants or picking up a part-time job.
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Don’t buy into “out of sight, out of mind.”
Keep in mind that your loan may be accruing interest during the time you’re in school. Although you’re not required to make payments during that time, that interest will be added to the original loan amount—so, you may end up owing more than you thought. If you ignore your loan until after you graduate, you could be paying thousands of dollars more over the life of the loan. If, however, you choose to pay the monthly minimum while you’re in school, you could save a significant amount. Do the math and work with your budget (and your parents!) to execute a cost-saving strategy.
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Pay on time, every time.
When it comes time to pay back your student loan, it’s important to understand the damage that being late (or ignoring it completely) can do to your credit score. Thankfully, the federal government is lenient to a point. However, if you miss payments for more than a few months, and your credit score suffers, it could jeopardize your ability to qualify for a home loan, rent an apartment or even secure a job. Defaulting on your loan could result in wage garnishment, additional penalty fees, a lien on your assets or even a lawsuit.
If you’re having trouble making even the minimum payments, seek help right away … before your loan falls into default. Check with the federal student aid office to see what your options are.
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If you can swing it, pay more than just the minimum.
Every dollar you put toward your loan reduces the interest owed on that dollar. So, the more you pay each month, the less interest you’ll pay over the life of the loan. Keep this in mind when you’re considering traveling with friends, eating out every weekend or buying a new gaming system. Save money where you can and put it toward your student loan—it can save you thousands of dollars and months or years off your payment!
