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How to Minimize Student Loan Debt

How to Minimize Student Loan Debt

More students graduate each year with excessive student loan debt.

Mark Kantrowitz

April 12, 2011

Enroll at a less expensive college.

One of the best ways to cut debt at graduation is to enroll at an in-state public college. In-state public colleges often provide a quality education at bargain prices, yielding among the best possible returns on your investment. You don’t need to attend a brand-name school to get a good education. The primary differences between colleges are not in the faculty or facilities, but in the students.

Enrolling in a public college can save you several thousand dollars in debt by the time you graduate. Among students graduating with Bachelor’s degrees and education debt in 2007-08 (the most recent year for which data is available), the average debt at graduation was $19,828 for students graduating from in-state public colleges, $23,108 for students graduating from out-of-state public colleges, $27,535 for students graduating from private non-profit colleges and $32,909 for students graduating from private for-profit colleges. Students enrolled in public colleges are also less likely to graduate with debt, with 61.2% of Bachelor’s degree recipients at public colleges graduating with federal or private student loan debt, compared with 70.5% of Bachelor’s degree recipients at non-profit colleges and 96.0% of Bachelor’s degree recipients at for-profit colleges.

Starting off at a community college and transferring to a 4-year college can save thousands of dollars. Students who obtained a Bachelor’s degree from a public 4-year college in 2007-08 after transferring from a community college graduated with about $6,500 less debt than students who started off at a 4-year public college.

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However, enrolling at a community college may not be the best strategy for students who want to get a Bachelor’s degree. While some states have programs where graduates of the state’s community colleges are guaranteed admission to one of the state’s 4-year public colleges, students who take a community college detour on the way to a Bachelor’s degree might not reach their destination. An analysis published by the National Bureau for Economic Research found that students who intended to obtain a Bachelor’s degree and started off at a 2-year college were 14.5% less likely to obtain a Bachelor’s degree than students who started off at a 4-year college. A paper by an economist at the Federal Reserve Bank of St. Louis found that among Bachelor’s degree recipients, students who transferred from a community college had a persistent salary gap of $2,268 compared with students who started at a 4-year college and never transferred. Perhaps a better approach is to take classes at the community college during the summer break, provided that the credits will transfer to the 4-year college and help you finish quicker.

Students enrolled at 4-year non-profit colleges are more likely to graduate and to graduate sooner than students enrolled at 4-year public colleges, based on data concerning full-time students who first enrolled in college in 2002 seeking a Bachelor’s degree. The 4-year graduation rate is 29.9% at 4-year public colleges and 51.0% at 4-year non-profit colleges. The 5-year graduation rate is 49.2% at 4-year public colleges and 61.3% at 4-year non-profit colleges. The 6-year graduation rate is 54.9% at 4-year public colleges and 64.6% at 4-year non-profit colleges. So about two fifths of students at 4-year public colleges may need an extra year to graduate, as compared with students at 4-year non-profit colleges.

But even with the extra year, the students who graduate from in-state public colleges with a Bachelor’s degree in 5 years still graduate with less debt than students who graduate from private non-profit or for-profit colleges in 4 years. The average debt at graduation for a student who graduates with a Bachelor’s degree from an in-state public college in 5 years is $25,117, about $5,600 more than a student who graduates from an in-state public college in 4 years, but almost $2,500 less than a student who graduates from a non-profit college in 4 years and about $13,700 less than a student who graduates from a for-profit college in 4 years.

If you enroll at an out-of-state public college, try to establish residency first so that you can qualify for in-state tuition.

Rules for state residency vary from state to state, but generally require living in the state for 12 or 24 consecutive months before first enrolling in college. Some states also require the student to have graduated from a high school located in the state. Very few states allow you to qualify for in-state tuition after you’ve already enrolled in college. Ask about regional exchange or consortium programs, as some states will allow students from neighboring states to qualify for in-state tuition, especially if the student is majoring in a field of study that isn’t offered by the public colleges in their home state.


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