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Student Loan Debt Clock Reaches $1 Trillion

Student Loan Debt Clock Reaches $1 Trillion

Mark Kantrowitz

May 08, 2012

How to Cut Student Loan Debt Before College

• Compare colleges based on the net price, the difference between total college costs and grants, scholarships and other aid that does not need to be repaid. The net price is the amount of money the family must pay from savings, income and loans to cover college costs. A higher net price usually means more debt at graduation.

• Estimate debt at graduation by multiplying first year debt by the length of the education program (e.g., 4 years for a Bachelor’s degree). Your total student loan debt at graduation should be less than your expected annual starting salary, and ideally a lot less. If total education debt is less than annual income, the borrower will be able to repay the loans in about 10 years. If total debt exceeds annual income, the borrower will struggle to repay the loans and will need an alternate repayment plan, like extended repayment or income-based repayment, in order to afford the monthly loan payments. These repayment plans reduce the monthly payment by stretching out the loan term, which means the borrower will still be repaying his own student loans when his children enroll in college.

• Don’t borrow more than $10,000 for each year in college. If you do, you’ll graduate with more debt than 90% of your peers.

• One of the best ways to save on college costs is to enroll at an in-state public college or at a college with a generous “no loans” financial aid policy.

• Start searching for scholarships and saving for college as soon as possible. It is worthwhile to save even if you start late. Every dollar you win and every dollar you save is about a dollar less you will have to borrow. It is literally cheaper to save than to borrow. If you save $200 a month for ten years at 6.8% interest, you’ll accumulate about $34,400. If instead of saving, you borrow this amount, you’ll pay $396 a month for 10 years at 6.8% interest.

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