If you're going to go into debt for college, it needn't be an anchor around your neck.
So when I discovered some useful tips in a recent WalletHub study on student debt, I thought they might be helpful in reducing this burden.
Actually, WalletHub's study in itself wasn't terribly helpful; it was the advice at the bottom of the report that was worthwhile.
WalletHub discovered that some states were better than others when it came to student debt. It could have something to do with the cost of education in those states and the availability of grant money. I'm not sure how you can use this information, but there are some interesting distinctions:
- The average student debt in Delaware is 2 times higher than in New Mexico.
- The proportion of students with debt in South Dakota is 2 times higher than in Nevada.
- The unemployment rate for people aged 25 to 34 in Rhode Island is 4 times higher than in North Dakota.
- The percentage of student loans in past-due or default status in Mississippi is 3 times higher than in Vermont.
- The percentage of student loan borrowers in past-due or default status in West Virginia is 3 times higher than in South Dakota.
- The percentage of student loan borrowers aged 50 or older in Vermont is 3 times higher than in Hawaii.
What You Can Do
Now here's the advice, culled from a number of financial aid experts questioned by WalletHub:
1) Go to community college. You can save thousands on tuition and fees. Since you're not paying for dorms, there's a big savings there. You can even take these courses while in high school. The great thing is that most of the courses will transfer to four-year colleges, so you can save a bundle.
2) Choose the best loan repayment option. "Students should also familiarize themselves with loan repayment options, including income-based repayment," according to Robert Kelchen, assistant professor at Seton Hall University. "These options can cap repayments at as little as 10% of income over 20 years and may make sense for some people compared to the traditional 10-year repayment plan."
3) Pick the most advantageous loans. Rosemary Ferrucci, assistant dean for financial aid at New York Institute of Technology, offers these tips:
If you find you must borrow to cover tuition and fees, you should:
- confirm that you feel this institution’s degree is worth you borrowing to obtain it and pay off over years
- insure that you take your federal student loans FIRST (multiple repayment options and governmental backing)
- depending on what you have been awarded in Federal loans, the best loans to take (based on interest charges and repayment considerations) are:
- The Perkins loan
- The Subsidized Stafford loan and
- THEN the Unsubsidized Stafford loan.
- IF you are a Graduate student – take your Stafford Loans before borrowing any Graduate PLUS loan.
- Parent Loans and Graduate PLUS loans are still a worthwhile consideration in comparison to alternative educational loans in the general marketplace.
Note: The least-desirable loans are private loans, which carry higher rates and the least-flexible terms. Avoid them at all cost.
4) Maximize your savings. Work during the summer as much as you can. Save money from tips, birthdays and holidays. Have grandparents and other relatives contribute to your college fund or 529 college savings plan.
5) Don't over-borrow. "Borrow only what you need," advises Thomas Kokis, dean of student financial literacy at Berkeley College. "Put yourself on a budget while in school and stick to it. If you can, make payments on your student loans while in school - particularly on the interest accruing Unsubsidized loan.
You want to make sure your monthly payment is affordable. Financial planners suggest that your student loan payment should not exceed 8 to 10 percent of your monthly income. High levels of student loan debt will make it tougher to save for a home or your retirement."
Of course, the best way to avoid student debt is to side-step it every way you can. Take advanced placement courses in high school. Take courses to bolster your ACT and SAT scores, which could help you qualify for merit aid.
Consider state colleges before private universities. If you take a comprehensive approach to college financing, you may not even need loans. That would make for an excellent education -- one that's paid for before you graduate.
