Avoiding Student Loan Debt

How to avoid the student loan trap

6/24/15

In less than a decade, government funded student loan debt has increased dramatically from $516 billion to $1.2 trillion in the United States. This number doesn’t include what students have taken in private loans to pay for college which is estimated to be another $150 billion. Today, when college graduates take their first steps into the real world after college this debt can make things difficult as they are already two steps behind financially.

Trying to save for a down payment on a home or for retirement can be nearly impossible when student loan payments take up a large percentage of a graduate’s income. In fact, some people are still paying off their student loans well into retirement. Even the President entered the oval office still strapped by student loan debt.

According to LIMRA Secure Retirement Institute, in 1989 student loans made up less than 1 percent of retiree debt. In 2013 student loans made up over 15 percent of retiree debt. If you or someone you know is about to go to college, some tips are as follows:

Apply for every grant and scholarship possible.  Many people do not apply because they think they won’t qualify. This may not be the case. You should still apply for everything available to you because it is free to do so, and obtaining a grant or scholarship can make a huge difference in the amount of debt you will have upon graduating.

Go to community college before a University.  There are so many cases where a student will go straight to an expensive University right after graduating from high school, get home sick or realize college isn’t for them, and then  return  home to  go to community college with massive amounts of student loan debt already accumulated. The best thing may be to do the first couple years of schooling at a local community college, live at home, and save a lot of money in the process. That’s an extra two years that you won’t have to pay tuition at an expensive university. In addition, many community colleges have automatic transfer agreements with four year universities which can make it easier to get your foot in the door at the college of your choice after your first two years of credits are complete.

Go to a State college. State colleges are much less expensive than private universities. Some may say you need to go to a big named private university to get a high paying job but this is a common misconception. In fact, according to a Wall Street Journal survey, many recruiting managers go after state school students because they tend to be a better fit for their business environment.

Find a part-time job or paid internship.  Attending college is about gaining the knowledge and skills that an individual will need to become a well-rounded person and compete in the job market. By working in your field before graduation you will not only be able to offset some of your expenses, thus reducing your overall student loan debt, but you will also be able to add the skills and experience that you gain to your resume which may set you apart from other job applicants after graduation. 

If there is no other option besides a student loan. The best option would be to get a Stafford subsidized loan, which does not start accruing interest until after the student graduates. Since the interest does not accrue while the student is still in school, the total amount owed in the end will be less that with an unsubsidized loan.

Student loan debt is quickly becoming a major financial challenge for many American households. It is important to plan ahead to make sure that you or your children or grandchildren do not fall into this trap by taking steps to reduce or eliminate the amount of debt that is needed to get a degree.