I don’t have first hand experience with student loans, so I happy to introduce someone who knows a thing or two about how to handle them: Gary Dek. Gary is the founder of Gajizmo.com, a site focused on personal finance, career and education advice, and self-improvement tips. Below are his tips on handling student loans and paying for college without a massive price tag.
I was fortunate enough to attend a 4-year private university and graduate with only $13,500 in subsidized Stafford loans, which I paid off in 10 months. Although I did graduate a year early (note to high school students – those AP classes are worth thousands in the future), I still managed to get a $200,000 education for close to 5% of the cost. And no, my parents didn’t pay for the difference out-of-pocket.
Our host, Erin, did it even better – she’s never had student loan debt (or any other kind). Now that’s the kind of person you want to be taking personal finance advice from.
The following steps will help you avoid overwhelming debt and teach you how to reduce student loans.
Pick A Degree That Will Yield A High Paying Job
If you want to go to a prestigious university that will be expensive, plan to major in engineering, business, computer science, finance, or something that will help you land a job paying at least $50,000 a year after graduation. A decent salary will help you manage your debt.
Studying to be a teacher or artist at the same school will make it much harder to pay off your debt. If high-pay isn’t critical to your dream job, then consider the best public university you get accepted to.
If getting a diploma from a prestigious school is a goal, think about going to a junior college first to get your general education credits out of the way, and then complete your degree at the university of your choice.
Apply For Scholarships
One of the best ways to avoid student debt after graduation is to earn free money – scholarships. There are plenty of organizations giving away free money to those who are looking finance their education. Some scholarships are need-based while others depend on your academic achievements. Here’s how you can qualify:
- Do well in school. If you have a high GPA (grade point average), you may be eligible to receive a scholarship directly from your university. Talk to the Financial Aid Office (FAO) to discuss what types of scholarships are available and if there is paperwork you must fill out to be considered. For private, third-party scholarships, some companies give money to students who come from lower socio-economic backgrounds. This is called a need-based scholarship based on your parent’s income. However, there are also opportunities for academic scholarships, or a combination of both. Even if you aren’t a freshmen but your GPA has been high throughout college, you may still be eligible.
- Be a good athlete. Some colleges are more likely to give better scholarships to athletes than those who excel academically. If you’re athletically gifted in a major sport, apply for scholarships at schools that value your skill. Keep in mind, though, that Ivy League universities do not offer athletic scholarships.
- Show your leadership abilities. Aside from physical prowess and academic success, being a volunteer, belonging to clubs, and having strong leadership skills is a plus when applying for scholarships. In fact, the group you volunteer for may have scholarship programs that only volunteers can apply for, thus significantly reducing the pool of competing candidates.
- Are you a minority? If so, there are several scholarships simply based on your ethnic or religious background. Organizations like the NAACP, the Jackie Robinson Foundation, and State Farm Insurance can help lower your out-of-pocket expenses.
- What’s your major? There are scholarships available for specific programs of study such as Spanish or Sociology. These scholarships usually require a minimum grade point average.
Look Into Grants
Government grants are a form of free money as well and are awarded depending on your financial need. They won’t cover your whole tuition, but compared to scholarships, loans, and work-study offers, government grants are the easiest to get. Just fill out the FAFSA application starting January 1st of every year to determine whether you qualify for the following school year.
- The Pell Grant: Pell Grants are based on financial need, the cost of attendance at your school, and whether you are a part-time or full-time student. The maximum Pell Grant award is $5,550 per year.
- Federal Supplemental Educational Opportunity Grant (FSEOG). Students who can prove that they have extreme financial need can be eligible for this government grant. It ranges from $100 to $4,000 a year.
- The TEACH Grant. The Teacher Education Assistance for College and Higher Education Grant is offered by the federal government for students who plan on teaching at schools in low-income areas or in a “high-need field”. Within the first eight years after graduation, students are required to teach for four years or the grant will have to be paid back like a student loan. The program pays as much as $4,000 a year.
All this information can be found at Ed.gov.
Research Loan Options
If you have student loans, there are ways to lower the amount of interest you must pay back.
- Know the difference between a “variable” and “fixed” interest rates. While a fixed rate might look more expensive upfront, as interest rates increase in the future, variable rates will increase with no ceiling. While the interest rate environment in the United States may be artificially suppressed for the next couple years, remember that your student loan has a 10-year term. Do you believe we will have low interest rates for the next 10 years? I don’t, and would recommend a fixed rate.
- Know the difference between private and government loans. You can defer government loans, such as a Stafford or Perkins loan, so that you won’t have to start making payments until you graduate. Government loans tend to be cheaper and more flexible. If you become disabled or die, the government will forgive the loan. It’s in your best interest to use government loans instead of private loans, but if you find your expenses aren’t fully covered, you might have to consider a private loan. Fortunately, as of 2014, the U.S. government is doing its best to compete against private lenders and push them out of the market.
- Have someone co-sign for you. Most of the time, you really don’t have a choice. Since students have little to no credit, lenders require a co-signor. Remember, though, that if you miss a payment, the person who co-signs will be responsible. This is one reason life insurance agents try to encourage young adults to buy life insurance since a death benefit will pay off the student loan and avoid it becoming a parent’s liability. Frankly, the risk of a young, healthy adult dying is slim, so instead of buying even the cheapest term life insurance policy, take the cash and pay down your student debt as quickly as possible.
Other Options to Reduce Student Debt
Get A Job. With proper time management, you can work while going to college. You may have to manage your time better and forgo a few parties, but when you graduate and find you have little to no debt left over, you’ll be glad you took care of business.
Working through college will not only help you become a better planner, but your future job search will benefit from your past experience. Even if your part-time job during school is unrelated to your chosen career path, holding down a stable job demonstrates responsibility and reliability.
Work-Study Programs. Assuming your FAFSA results offer you a work-study program, you will have a chance to get a job on campus. With work-study, you will be paid to do office work in a department or lab. Some students may even be able to do research with a professor.
The best part about work-study is that down-time allows you to study for classes. For more information on work-study, discuss your options with a student advisor at your school.
Paid Internships. Another way to mitigate your student loan debt is to get a paid internship. A lot of majors require an internship anyways, so you’d be killing two birds with one stone. Not all internships are paid, but you’ll still get valuable experience that will look good on your resume and help you to find a better summer internship or job. Meet with your academic advisors, professors, or the career services center at your school for more information.
Live Within Your Means
Living in affordable housing and being thrifty with your money is really the first step towards making your debt less overwhelming. While living in a college dorm may be convenient and give you ample opportunity to make new friends, sometimes it isn’t the most cost-effective housing available. You may have to spend up to $1,000 a month to live on campus, but with good roommates, you could be paying as little as $400 a month for rent in an off-campus apartment.
Along with your dorm expense comes a required meal plan, which averages about $10 per meal. That’s over $200 a week for crappy dorm food. If you have an apartment with a kitchen, you can spend less than $200 a week on groceries for you and your roommates. If you all pitch in on groceries and cooking, you will save thousands. Just don’t sacrifice your health to save a few dollars.
Finally, resist the urge to splurge on expensive meals, alcohol, and other things you really don’t need. Have a budget in mind to help you avoid credit card debt. If you thought student loan debt is bad at 7% interest, imagine how financially devastated you’ll feel with credit card companies charging you up to 30% in interest fees.
Use Your Entrepreneur Skills
While you’re in college, utilize your special talents or skills to supplement your income. Charge students for tutoring, website design, become a freelance writer, start a personal finance blog to educate others on financial responsibility, or sell products on eBay or Amazon. Not only will you earn decent money, but you’ll develop real-world skills future employers will appreciate. And who knows, you may just come up with the next big thing.
Student Loans Are An Investment In Yourself
While a lack of research and planning can result in overwhelming debt, don’t skip a college education because of financial issues. Consider your degree an investment in yourself that will pay dividends for the rest of your life. College is worth it for most people, and there are options and opportunities available to help reduce or altogether eliminate student debt.
Start a savings account, be frugal with your money and apply for scholarships and grants. If, after exhausting all of your efforts, you still find that you can’t cover your entire tuition and school expenses, talk to your school. The university’s administration will work with you to find financing in forms you may not have thought of or couldn’t access on your own. Make an appointment with a financial aid advisor/counselor for more assistance. The office may even have extra funding left over for the year!