Student Loans 101: How to Avoid Big Debt

Student Loans 101: How to Avoid Big Debt

Student loans have come under a lot of scrutiny recently, and for good reason. Student loan debt can become a life-altering problem, forcing you to take high-paying jobs over jobs that you actually enjoy and making life events like buying a house or a car extremely difficult. Without question, they should be taken very seriously.

Of course, that isn’t to say student loans aren’t useful in some cases because, for those who need them, student loans can open the door to higher education for people who wouldn’t be able to afford it otherwise. This post is all about student loans and how to make the most of them while taking out the least of them.

How do I apply for student loans?

In order to get access to federal student loans, you have to fill out your FASFA application (Free Application for Federal Student Aid). Your college will then give you a financial aid offer, which may include a couple of student loan options (see the difference between subsidized and unsubsidized below). You can also apply for student loans directly from private lenders.

Subsidized or Unsubsidized?

Let’s start with the difference between subsidized and unsubsidized student loans. The biggest difference is that subsidized loans do not accrue interest while you are in school or during grace periods, while unsubsidized loans gather interest from the moment you sign them. This distinction can make a huge difference in the amount you end up paying since that interest adds up quickly if you don’t pay it down while in school. After you graduate, the unpaid interest gets added to your principal and you have to pay interest on your new (larger) total. Subsidized loans are also reserved for undergraduate students with financial need, and unsubsidized loans are available to any student, undergraduate or graduate.

My high school guidance counselor gave me this advice, and I will now pass it to you: avoid unsubsidized loans if at all possible. The loan limits for unsubsidized loans are generally higher than subsidized, so many people take out more than they actually need. You end up paying more in interest than you would in subsidized as well because it is accruing interest while you are in school.

What about private loans?

Private loans can be tricky simply because they can be so variable. You should review the terms of any loan you take but especially those from a private lender since their policies can be very different than their federal counterparts. Private loans also take into account your income and your credit score when determining your rate and eligibility, which can make them inaccessible to a lot of people.

How much should I borrow?

This answer is pretty simple: you should borrow what you need. The reason student loans exist is to help you pay for your education and not starve in the process, and they should be used for that purpose. However, loans are not free money, so you also should think about how much debt you will reasonably be able to pay off after college. Take into account what you expect your post-graduation income. There are many benchmarks to help you calculate an acceptable amount of student debt depending on your income. In general, monthly payments should be no more than 8-10% of your projected monthly income.

Should I have a cosigner?

Cosigners legally share the debt that you owe on your student loans. Let’s say your mom cosigns your loan. She is now responsible for your debt if you can’t pay it, and as a result, her credit is impacted in the same way yours is if you don’t make payments on time. And hypothetically if you were to pass away, your debt would be transferred directly to her and she would be responsible for all of it. If your cosigner can’t afford to pay your debt back themself, signing onto your debt can be incredibly risky.

If you are borrowing from a private lender and don’t meet the income and credit score requirements of your loan, they will require a cosigner. This is even more of a reason to read your loan conditions carefully so that you can ensure you have the means to make payments on time and keep both you and your cosigner out of financial trouble.

What can I do to minimize my student debt?

Free money

No, not anything illegal! There are tons of scholarships you can apply for online that can help you pay for some (and sometimes even all) of your tuition, especially if you have financial need. Check out your college’s financial aid webpage to see their scholarship options, and take a look at scholarship databases (here is one that can get you started). I would recommend spending time finding the scholarships that you would qualify most for and do the extra work to write great essays. The scholarships that require the most work are the ones the least amount of people will apply for, so you will have the best chances of winning.

Make money in college

There are tons of job opportunities in college towns, whether it’s through the college itself or in the larger community. We will be making a post about job opportunities in college very soon, so stay tuned! But for now here is a short list of generally student-friendly places to work: campus libraries, residential halls, coffee shops, local restaurants, and research labs. Of course, as a student-run tutoring company, we also have to mention tutoring, which pays better than most of the jobs I just mentioned and has extremely flexible hours. Whether you tutor with a company like Subject Saviors or on your own, it is a great option for students.

Graduate on time

We hear all the time that college is about exploring and enjoying yourself, BUT if you are accruing debt while in college, an extra few credits can mean a few extra thousand dollars you will be paying back later. Be intentional in the classes that you take and try to finish your degree in the least semesters possible to limit the debt that you are accumulating.

Save money

If you can, you should start saving before you get to college so that you don’t have to take as much out in loans. But saving shouldn’t stop when you get to college or after you graduate. The less money you spend in general, the more you can use towards paying your tuition or paying off your debt after.

There are plenty of ways to save money as a college student. Here are some ideas:

• Choose a school with reasonable tuition
• Rent textbooks, buy them used, or find them online for free.
• Compare rent between dorms, apartments, and houses. Having roommates can make your room less expensive.
• Use the bus or bike instead of paying for parking
• Cook instead of having a meal plan or going out to eat
• Use a budget app like Mint to help you track monthly expenses and find ways to save

How can I get rid of student debt once I have it?

The most reliable way to get rid of your student debt is to pay it off. Unlike other kinds of debt, student loan debt is with you for life and can’t be dissolved through bankruptcy. This makes it almost impossible to simply dissolve. However, there are federal relief funds for people with debt working in public service and for teachers. The applications can be time-consuming and take a while to process, but they can save you a lot of money if you have the patience and qualifications.

TLDR

Student loans are no joke and should be taken out only when necessary. However, there is no shame if you do need to take out loans, and frankly, it’s hard to avoid them with universities costing as much as they do. If you are one of the many people who do need to take out loans, make sure you read the fine print to ensure that you understand everything you are agreeing to and that you have a plan to pay them back on time. Subsidized loans are your best option, and you should avoid unsubsidized if at all possible.

The best advice for student loans is to take out as little as possible and make your payments on time (or early if possible!).

As always please share your experiences, advice, and thoughts in the comments. We want to hear from you!