Minimize Debt From Student Loans
Let’s face facts: If you’re entering college today, you’re probably going to have to take some student loans. According to FinAid.org, a website that tracks student lending, more than two-thirds of bachelor’s degree holders left school with some debt in 2007-08 (the most recent year the National Postsecondary Student Aid Study was conducted). But is there anything you can do to minimize the debt you’ll have when you graduate?
Definitely! Here are five tips on reducing your student loan burden:
1) Start saving for college early. This is for parents more than students, because we’re talking really early – like right-when-the-kids-are-born early. A 529 plan – which helps families set aside money specifically for future college costs – is a great way to do this, but even a regular savings account can be a big help.
Parents, put money given to your kids as gifts into such a plan, and add to it yourself when possible. Students, when you start earning money with a part-time job, make sure some of it goes toward saving for college as well. Starting college with a nice chunk of money to cover tuition, housing, books and other expenses allows you to focus on what’s really important: getting good grades and completing your degree.
[Learn all about 529 college savings plans now!]
2) Avoid scams. Unfortunately, there are a lot of underhanded – and often illegal – financial aid scams out there. The old adage is important: If it sounds too good to be true, it probably is.
Fraudulent financial aid offers are typically designed to take your money or your personal information (or both) and give you nothing in return. As a general rule, if you’re asked to pay money to apply for a grant or scholarship, it’s a scam. They’re supposed to be giving you money, not the other way around.
3) Get as much free money as possible. The best kind of financial aid is the kind you don’t have to pay back. College scholarships and Pell Grants are the most common forms of free assistance.
Merit-based scholarships are awarded for exceptional performance – high grades, notable athleticism, engaging in extracurricular activities, winning academic competitions and other important achievements. Some are given out based on other criteria, such as taking an unusual major or belonging to an underrepresented minority group. Any scholarships you have a chance of winning are worth applying for; every dollar you get is a dollar you don’t have to pay back when you’re done with college.
Undergraduate students who have not earned a bachelor’s or professional degree are eligible for Pell Grants. The U.S. Department of Education has set the maximum award for the 2011-2012 academic year at $5,500. However, the amount you actually receive depends on your financial need, your cost to attend school, whether you are a full-time or part-time student, and several other factors. You must submit a Free Application for Federal Student Aid (FAFSA) to be considered for a Pell Grant.
[Search for scholarships at CollegeBoard.com now!]
4) Take low-interest federal loans first. Federal student loans (Stafford loans) are your go-to resource if you can’t cover your costs with grants and scholarships. They don’t require a credit check and generally offer much better terms than private loans.
Undergraduates can take subsidized Stafford loans at a low interest rate – currently set at 3.4%* – and the government pays that interest as long as you’re enrolled in school at least half-time. This means that you’ll owe the amount you borrowed when you graduate and nothing more. And when interest does start accruing it won’t be very much. Unsubsidized Stafford loans also have a relatively low interest rate (currently 6.8%*), but it does start accruing immediately after you take the loan.
Finally, parents who want to help a dependent child pay for school can look into getting a federal PLUS loan.
[Compare loans with FinAid.com’s loan analyzer now!]
5) Only take private loans as a last resort. All private lenders are different, but they generally do not offer the favorable terms that federal student loans do. They almost always require a credit check and tend to have higher interest rates. Private lenders may also require you to start paying interest while you’re still in school, which can be a big hardship for a serious student.
If you do have to take a private loan, do a lot of comparison shopping. At certain times, some lenders will offer to waive the origination fee or lower interest rates to attract borrowers. As with any loan you take, take the time to carefully examine the terms before you sign.
[Download your free financial aid guide now!]