How to Avoid Student Loan Debt

Mark Kantrowitz of FinAid.org suggests that college students shouldn’t borrow more than their expected starting salary. But in difficult times, it is almost impossible for students to accurately estimate what they’ll make when they graduate and some remain unemployed for years. The best course of action is to avoid student loan debt at all costs by planning ahead, getting into the right mindset and being smart about your money.

Can You Really Afford This College?
Many people go to certain colleges because of the status (keeping up appearances) or because they believe it will guarantee them a job upon graduation. But the truth is that graduates of many top-rated schools have a hard time getting jobs just like everyone else. They also have to deal with an undue load of debt due to their school choices.

In a 2011 CNN Money article Cornell University graduate Meghan O’Halloran says, “I thought getting a job would be a snap.” But she had a very difficult job finding employment.

After you fill out your FAFSA (Free Application for Federal Student Aid) colleges can estimate how much you would have to come up with after they apply any grants and other forms of student aid other than loans. The amount left over, your student obligation, should be reasonable enough that you can pay the tuition bill off with cash at the beginning of each semester using your own money. Remember that in-state colleges often offer students better financial aid options, including state grants. File your FAFSA as early as possible to ensure that you have time to make the right financial decision.

Start a Summer Job in High School
If you’re an ambitious young person, the summer of your sophomore year is ideally the year to start working and saving up for college. Look for an after-school job and summer job—save up your earnings in a CD (certificate of deposit), 529 plan or other type of savings account that you can’t touch until college.

If you’re not excited about working during high school, think about how much you’ll have to work five to 10 years or more down the line if you have tens of thousands of loans with interest to pay back.

Scholarships
Some students falsely believe that in order to get a scholarship or grant you have to have top scores in high school. The truth is that there are a wide variety of scholarships available to students for accomplishments besides grades—what you really need is the work ethic to find and apply for them.

For instance, some students can apply for programs designed for student athletes or who have participated in community service during high school. If you’re a member of a school club, ask your organizer if there is a scholarship program for active members.

If you go to your guidance counselor’s office, he can most likely provide you with an updated book of scholarships available to students like you. You can also find this information at your public library. Dedicate a week after school to go through the entire book, identify scholarships that you qualify for and prepare applications to each of them. Ask your teachers and advisors to help you with the applications.

Get a Loan from Relatives
If your relatives have the means but for whatever reason are resistant to donating money to pay off your tuition, borrow money from them instead of a bank. Negotiate reasonable terms, such as zero or one percent interest and get it in writing. Better to borrow from an understanding family member than from a bank, which might charge you a high variable interest rate and ruin your credit in the case of a default.

Plan to Work through College
The first thing to do when you know the college you’ll attend is to start putting out applications in that area for a part-time, flex-time or full-time job. If possible, find a job that allows you to study when things are slow. If you qualify for a work-study program (consult the college’s financial aid office) the school will help you find a job that allows you to study while earning wages.

Stay Off-Campus
The cost of staying in on-campus housing is usually inflated compared to getting your own off-campus apartment with a few roommates. You can save a significant amount of money each semester by simply living in a room or sharing an apartment with other cost-conscious friends. It might be a longer walk to class and you might have to deal with a few annoying roommate issues, but remember that this is only temporary.

Community College Transfer
Going to a community college does not mean you’re not smart enough—in fact it means that you’re probably much smarter in terms of economics than students who choose to go to an expensive college for four whole years. Tuition at community college is usually less costly and many universities accept transfer credits from qualified community colleges.

Also, if you find yourself in a situation where you are having trouble affording your college tuition at an expensive school, don’t be afraid to swallow your pride and take the appropriate action. Transfer to a more affordable school or take a year off to earn money and get yourself into the right mindset about your future. Avoid being pressured into expensive private student loans, which often come with more restrictive terms.

Circumstances vary by student, and many still choose to take out some form of student debt to go to college. But if you’re wise, hard-working and resourceful you can avoid or at the very least minimize debt obligations related to your education.

Sources:

Isidore, C. (2011, May 17). The Great Recession’s lost generation. CNN Money. Retrieved from money.cnn.com/2011/05/17/news/economy/recession_lost_generation/index.htm

Wang, P. (2010, Apr. 8). Can you afford to pay for college? CNN Money. Retrieved from money.cnn.com/2010/04/07/pf/college_debt_loans.moneymag/index.htm

Alderman, J. (2012, Mar 30). Can Your Family Afford College? National Foundation for Credit Counseling. Retrieved from financialeducation.nfcc.org/2012/03/30/can-your-family-afford-college/