This post focuses on undergrad student loans.
Putting the Student Loan Problem in Perspective
In total, 44 million Americans owe about $1.6 trillion in student debt. About 70 percent of college grads have student debt when they graduate, with the average student having about $37,000 in loans.
These statistics look really scary, but the story is more complicated than “everyone’s crippled by their undergraduate student debt.” For example, student loan statistics are skewed by the small percentage of borrowers who owe over $100,000 and the fact that nearly half of all student loan debt is graduate student debt.
That being said, you should not take out loans until all other options are exhausted. Why borrow money for college when you can get other people to pay for it?
There are so many other strategies you can employ before taking on debt! Besides making a sound financial plan for college, there is a myriad of things you and your child can do to minimize student loans.
Strategies to Minimize Student Loans
1. Submit the FAFSA and do so earlier rather than later.
2. Appeal your financial aid letter. If you have gotten into a school and just can’t afford it, they are more likely to try and help you.
- Provide evidence of any financial changes in your family life since application – (change in income, another child in college, medical expenses, etc.)
- Leverage offers from other schools
- Use accomplishments and recommendations to prove your point
3. Maximize financial aid.
This can be a rather overwhelming process, especially with all its rules, formulas, and weird terminology. We recommend talking to a trusted financial advisor who understands this system. If you do not have an advisor, or yours is uncertain when it comes to financial aid, feel free to reach out to a College Funding Coach advisor who knows the process and can help you move forward.
4. Compare colleges based on out-of-pocket costs NOT sticker price.
One of the biggest headaches in the college planning process is figuring out how much each college actually costs. The process is notoriously opaque. Here’s an explanation of how college pricing works and how you can figure out what you will pay.
5. See if you are eligible for The American Opportunity Tax Credit.
The American Opportunity Tax Credit is a $2500 per year tax credit for taxpayers that have paid $10,000 or more to a college. There are income limits for this credit: households with over $160,000 in adjusted gross income will not qualify.
6. Apply for as many merit scholarships as you can without sacrificing quality or sanity.
Have your student spend a summer or two applying for scholarships. Treat it as their summer job and offer them incentives for winning money.
Apply for scholarships and grants throughout college. Even if you don’t receive a scholarship before your first year of college, there are many opportunities to apply for scholarships during the school year.
7. Commute to college.
Yes, some people argue that this takes away from the “college experience,” but you will save thousands of dollars by not paying for housing.
8. Consider community college.
- It is a fraction of what a four-year university costs.
- It may allow you to make up for a lackluster high school resume to bolster the chances of being accepted to your top school.
- If you’re uncertain about whether college is right for you, community college offers less financial risk.
9. Research generous schools
- People often focus on state schools with low sticker prices and overlook private schools; although they tend to have exorbitant sticker prices, they are often quite generous.
- Some out-of-state public schools toward the middle of the country can be affordable as well because they want to attract good students.
10. Graduate in three years.
This is one of the more underrated and less discussed strategies. You pay for one less year of college AND start making money earlier than your peers? Not too shabby.
Not sure how to do this? Here’s a guide.
11. Get your undergrad degree in four years or less.
You would probably be shocked by the number of students who do not finish their undergraduate degree within the typical four-year timeframe. The financial impact is substantial since it usually requires more debt, and there’s a massive opportunity cost in terms of the income the student could be making if they had graduated on time.
12. Ask family and friends for help. Some people even start crowdfunding campaigns.
13. Take a gap year to work, apply for scholarships, and build your resume.
14. Lastly, consider whether college is the right move for YOU.
Don’t just go because “it’s the thing to do.” College is not for everybody, and you definitely don’t want to take on loans and end up dropping out.
Concluding Thoughts on Student Loans
It is not irresponsible to use loans to help pay for college. It is irresponsible to take on a large amount of debt without a plan in place to handle it.
Regardless, loans have made college affordable for many people. Without them, many Americans would not have the opportunity to earn a college degree, thereby allowing them to land a great job or get started on a specific career path.
To conclude, here are three general rules of thumb if you need to borrow to pay for college:
- Use student loans prudently after all other channels have been exhausted
- Do not take out more in debt than your estimated salary in your first year out of college.
- We would go even farther and say this: considering the unpredictability of the future, it is wise to lowball this number.
- Start with federal loans, then move to private loans if necessary.
- This is a large and important topic that will be reserved for another post.