For many college students, getting a student loan is necessary to finance their education. With average tuition costing between $500 and $600 per credit, a typical four-year bachelor’s degree costs between $60,000 and $72,000.
Top Debt Relief Options
A private or federal student loan can make it possible for learners to receive a valuable education without worrying about loan repayment until they’ve completed their degree. Still, student loan borrowers should strive to reduce the amount of student loan debt they take on to make their repayment plan less overwhelming when it’s time to pay back their loans.
- Understand How Much You Actually Need
- Apply for Grants and Other Forms of Federal Student Aid
- Consider Parental Help
- Apply for Scholarships
- Choose the Right College
- Find a Job You Can Do While Studying
- Adjust Your Loan Amounts Each Semester
- Pay Interest While In School
- Make Larger Payments Each Month
- Explore Student Loan Repayment Options
- Opt for Automatic Payments
- Understand Potential Forgiveness Options
- Consolidate Your Loans
The average borrower has nearly $40,000 in student loan debt. With student loan forgiveness initiatives from the Biden-Harris administration currently up in the air, the future of student loan debt relief is uncertain. Therefore, it’s more important than ever for borrowers to understand how getting a loan to finance their higher education now can affect their future financial health.
Fortunately, there are many ways to reduce student loan debt, both by taking steps to avoid taking on too much student loan debt during college and by being proactive in managing your student debt once you have it.
6 Ways to Reduce Student Loan Debt Before Getting Federal Student Loans or Private Student Loans
Learning how to get out of debt is helpful, but it’s even more important to understand how to avoid getting into too much debt in the first place. Students using federal student aid in the form of loans can use the following tactics to reduce the amount of debt they need to take on to finance their education.
One of the biggest pitfalls college students find themselves in is accepting the full amount of student loans they qualify for, even if they are eligible for more than their tuition costs. Some students need extra to help them cover living costs associated with their time at college, like housing and travel expenses. But if your current semester costs $4,000 and you are eligible for $5,000 in loans, step back and really consider how much you need to borrow to get through the semester.
The best way to keep your college debt down is to borrow the absolute minimum you need to start with. Think about it: If you can put $1,000 of your own cash toward this semester, you only need to borrow $3,000. However, if you take the full $5,000, you finance $5,000. If you pay the loan off in 5 years at a 5% interest rate, you’ll pay about $400 in interest by borrowing $3,000. That changes to nearly $700 for the $5,000 loan, plus about $40 extra per month.
Fill out the Free Application for Federal Student Aid (FAFSA) to see whether you qualify for federal student aid. Although the FAFSA lets you know whether you can borrow a federal loan, it also determines whether you qualify for other ways to reduce your education costs, like work-study programs and the Pell Grant.
The Pell Grant is one of the most helpful federal programs for college students, as it offers between $7,000-$8,000 for the school year. Unlike a loan, the Pell Grant doesn’t have to be paid back, so it can be a great way to reduce student loan debt you accumulate by the end of your degree.
Some parents are able to save for their child’s future education over time, allowing them to help when it’s time for their child to go to college. If your parents have contributed to a savings fund for college – typically as a 529 plan or Education Savings Account – now is the time to tap into it. A parent can withdraw the saved cash to help you with your tuition, reducing your potential loan debt.
The federal government also offers a parent version of a student loan called the Parent PLUS Loan. A parent can borrow up to the amount necessary for your tuition, reduced by any scholarships, grants, or other forms of financial aid you get. Parents must fill out an application to determine their eligibility for the PLUS Loan.
Your school likely offers scholarships that you can apply for, which usually provide a minimum of $500 up to $10,000 or more. Similar to grants, scholarships do not have to be paid back as long as you meet the requirements to maintain the scholarship. This usually means keeping your GPA above a minimum amount or staying enrolled in a specific type of program.
When it comes to reducing what you’ll pay during student loan repayment, it’s important to consider the college you attend. Every college sets its own tuition prices, and some colleges can wind up costing you thousands of dollars more to attend than others. Compare the tuition rates between each school you consider to decide which school gives you the most value by balancing quality with affordability.
Some students choose to start their education with a two-year community college to save money. Community colleges usually provide much lower per-credit tuition rates than four-year colleges, and some are even free for nearby residents. You can still get federal aid for community college, but you could save yourself from getting into an unnecessary amount of federal student loan debt by beginning with a smaller college.
If possible, continue working while you study to help you afford your degree. Even if you have a part-time job for a few hours a week, you could earn enough to put some money toward your tuition or other college-related expenses to reduce how much you need to borrow.
7 Ways to Reduce Student Loan Debt After Getting a Loan
Once you decide to borrow a student loan, you should focus on maximizing each payment and taking important steps while in school to reduce student loan debt.
Try to adjust your loan amount each semester. For example, let’s say you qualify to receive a loan of $5,000 per semester. You might need that amount for some semesters but not for others. Perhaps you qualify for a $3,000 scholarship for the spring semester. You can put that scholarship money toward that semester, decreasing the amount you need to borrow in loans.
Remember that you can adjust how much you borrow as you work your way through school. Usually, this happens before each semester. Work closely with your financial aid officer to calculate what you owe and what you’ll need to borrow to prevent borrowing any more than you need.
Although you’re not required to make any student loan payments when you’re enrolled in school, it’s a good idea to begin repayment if you can. Interest still accrues, so paying interest can especially help you make a dent in your student loans, as your interest rate can tack on lots of additional money over what you originally borrowed by the time you’re done in school.
Paying interest on your loans while you’re in school can certainly help you climb out of debt faster once you’ve graduated. But you’ll still be left with a minimum monthly payment after you move out of the post-graduation deferment period.
If your finances can manage it, try to pay more than your minimum monthly payment. If you owe $400 each month, try to bump it up to $500. By paying off more of your principal faster, you’ll simultaneously decrease how much interest gets charged to your account.
Also, when you get a bulk payment, like a bonus from work or a tax refund, consider putting the money directly toward your student loan balance to reduce student loan debt faster.
Before your deferment period ends and it’s time to start paying on your loans, look into student loan repayment options. The federal government offers income-driven repayment options, which consider your income and how much you expect to earn in the future to give you manageable payments based on your discretionary income. Depending on how much you earn and how much you’ve borrowed, your monthly payment could be as little as $0.
You can compare income-driven repayment plan options on the Federal Student Aid website or through your student loan servicer. Currently, four income-driven repayment plans exist, including the new Saving on a Valuable Education (SAVE) Plan, which sets payments at about 10% of discretionary income.
Many loan servicers reduce your student loan’s interest rate by 0.25% just for signing up for automatic payments. As an additional perk, you’ll get your payments withdrawn from your account automatically, so you won’t have to worry about accidentally missing or being late on a payment.
Although this reduction seems small, it results in savings over the life of your loan, effectively lowering your debt. For example, let’s say you have $20,000 in student loans with an average interest rate of 5%. You plan to pay it off in 8 years, and you’ll end up paying over $4,300 in interest. With that 0.25% deduction to 4.75%, you’ll pay slightly over $4,000 by the end of those 8 years, saving you close to $300 – more than a full monthly payment. Of course, students with higher debt amounts or longer loan terms can benefit even more from the interest rate reduction.
Although the newest loan forgiveness program efforts are currently stalled, the government’s education department offers other pathways for potential forgiveness of your loans. For example, student debt cancellation could happen when you’ve made 20 or 25 years of payments in an income-driven payment plan, depending on your plan. After this time, any amount you owe will be counted as debt forgiveness.
Also, special groups can qualify for debt forgiveness through Public Service Loan Forgiveness (PSLF), such as teachers, government employees, and medical professionals. People with a permanent and total disability may also qualify for student debt cancellation. You can apply for these programs via the Federal Student Aid website.
Debt consolidation may be a helpful step for students with multiple student loans, each with different interest rates. By consolidating your loans, you’ll combine each loan into one loan with one interest rate and one monthly payment, potentially allowing you a more straightforward path toward paying off your debt. Opting for a direct consolidation loan can also give you a lower interest rate to reduce how much you pay in interest.
The best way to reduce student loan debt after college is to continue being diligent about paying as much as you can toward your student loans. Creating a budget can keep you on track with your personal finances and help you allocate a solid amount toward monthly student loan payments.
Consider downloading one of the best budgeting apps to help you manage your finances and monthly budget.
After graduating, be proactive about on top of your financial situation. Avoid opening up multiple credit cards or applying for private loans, both of which can dig you further into debt. Instead, look for ways to increase your income, like asking for a raise or taking on freelance projects, to help you chip away at your student loan debt while still meeting your other financial obligations.