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Every year we hear horror stories about college graduates buried in a mountain of student loan debt.  This debt burden often prevents them from starting families, buying homes or starting businesses.  Unfortunately, there is not a lot of guidance available for how to avoid or minimize student loan debt.  Here we will offer some tips to make the college years less stressful.

Your Major Should Determine where you go to school

When deciding about your college education there are a lot of things to consider, not the least of which is your field of study. This article looks at those majors that offer the best return on investment (ROI) in terms of future earnings.  However, you should not choose a major based on potential future income. You should choose a field of study that inspires you and will bring you years of enjoyment. Your career will span a long period of time.  Don't get stuck in a career you hate just because you can make a lot of money.

If your chosen major is not one of those with a high ROI, your choice of colleges becomes much more important.  There is no point paying for an Ivy League education if you can get the same position with a degree from a local college.  Here are some tips on paying less for that diploma:

  • Choose a public, in-state public school versus a private or out-of-state school:  According to the College Board, the average annual cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities.
  • Consider a 2-year community college before transferring to a 4-year program.  Community college programs (in your county of residence) are considerably more affordable than other options including a 4 year in-state public college.  You can take many of the required general courses at the community college and transfer the credits to a 4-year program where you will take those classes specific to your field of study.  When you graduate, your diploma will be from the 4 year school. 

Don't pay for everything with a Student Loan

Many college students will use student loan proceeds to pay for everything from tuition and books to room and board and even for extra spending money. This really inflates the balance of your loan.  If you were not enrolled in college how would you pay for room and board and other living expenses?  Do your best to pay your living expenses out of pocket.  That way you do not have to work for 10-15 years to pay off that late night pizza and beer.

Work during college

Taking on a part time job while in school has a number of advantages including:

  • Enabling you to pay for things out of pocket instead of financing them (books, room/board, etc.)
  • Giving you real-world work experience while going to school
  • Improving your time management skills
  • Enabling you to pay student loan interest while in school instead of adding it to the loan balance. 

Pay the Student Loan Interest as you go

Most student loan programs allow you to put off making any loan payments until after you graduate.  The problem with this is your loan is accruing interest each month and the amount of interest accrued is added to your loan balance.  The result is a loan balance that far exceeds the actual amount borrowed.  To make matters worse, upon graduation you will begin paying interest on the interest that accrued during your college years. If possible, pay the interest each month while you are in school to keep that debt from piling up.

Types of Student Loans

There are a number of student loan programs available.  You may not be eligible for all of them.  Talk to your financial aid office about which loan is right for you.

  • Subsidized
    • The government pays for interest during schooling
    • Subsidy stops 6 months after graduation
    • Subsidy can be reinstated if deferment is granted
    • Must show financial need to qualify
  • Unsubsidized
    • Borrower accrues interest through all 4 years of schooling
    • Unpaid interest is usually added to the loan
  • Federal student loans
    • Should be your first stop for student loans
    • Usually offer the lowest interest rates
    • Offer numerous repayment and/or forgiveness options
    • May be subsidized or unsusidized, depending on need
  • Private student loans
    • Do not have a government guarantee
    • Usually a supplement for Federal Student loans
  • Parent PLUS Loans
    • Loan is guaranteed by student's parents
    • Usually used when not eligible for other student loans

Repayment Options

Once you graduate (and even if you don't but you are no longer enrolled) you will need to start repaying your student loan debt.  Each loan offers different repayment options.  Some can even be forgiven based on your career path and years of service.  You should look at the repayment terms before signing the loan papers.  Some repayment options include:

  • Income-based repayment
  • Public Service Loan Forgiveness
  • Stafford Loan Forgiveness for Teachers

The Most Important Thing to do:

  • Be sure to apply for as many grants and scholarships as possible.  Not all grants and scholarships are needs based and many are not specific to a particular field of study.  Contact your financial aid office for a list of resources.  Many grants and scholarships go undistributed each year because no one applies for them. Grants and scholarships do not need to be repaid making your college education much more affordable

Applying for a Loan

To begin the student loan application process you will need to complete the FAFSA.  This process is FREE.  You do not need to pay anyone to complete the application.

If you have exhausted your grant, scholarship and federal student loan options and are still in need of additional funds, Advantage Financial FCU has partnered with Sallie Mae to provide private Smart Option Student Loans* to our members.  To apply please visit Sallie Mae

*Advantage Financial FCU is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.