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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 During College

• Always borrow federal first. Federal student loans are cheaper in the long term, more available and have better repayment terms. Federal student loans offer income-based repayment and public service loan forgiveness, while private student loans do not.

• Beware of variable rate loans. Variable interest rates are currently at unusually low levels and have nowhere to go but up. Add about 4 percentage points to the interest rate on a variable rate loan to get a ballpark estimate of the interest rate on an equivalent fixed rate loan.

• Use tuition installment plans as an alternative to borrowing. Tuition installment plans allow the family to spread out college costs into equal monthly payments over the academic year. Tuition installment plans do not charge interest, but usually have an upfront fee of $50 to $100.

• Students can also save on the indirect costs of college, such as textbooks and living expenses. Textbook prices can add up, so save by buying used textbooks and selling textbooks back to the bookstore at the end of the semester. Cut back on living expenses by minimizing the number of trips home from school, by living at home or with a roommate and by minimizing personal expenses. Live like a student while you are in school so you don’t have to live like a student after you graduate. A $10 pizza a week will cost $2,000 by the time you graduate. And if you spend student loan money to buy the pizza, it will cost about $4,000 by the time you pay back the debt. Every dollar in student loan money costs about two dollars by the time the debt is paid in full. So before you spend student loan money on anything, ask yourself if you’d still buy it at twice the price, since that’s realistically what it is going to cost you.

• Take a heavier workload, so you can graduate on time or even a semester or two early, cutting college costs by 10% to 20%.

• Pay the interest on unsubsidized loans while you are in school to keep the loan from growing bigger.

• Work part-time during the school year (no more than 12 hours a week) and full-time during the summer to earn money to help pay for college.

Additional tips for minimizing debt are available from the Quick Reference Guide on Choosing a Student or Parent Loan.

Next Page: How to Cut Student Loan Debt After College

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