According to a recent report published by the U.S. Federal Reserve, student loan balances have climbed to a shockingly high $1.26 trillion. Moreover, 11% of that student loan total is considered 90+ days delinquent or in default. Every year we see an increase in college tuitions, leading to more and more prospective students needing to borrow funds to attend. These students sometimes find that they are unable to pay back their loans, due to lack of jobs or disappointing wages. In these cases, college grads find themselves in massive debt and even considering bankruptcy.
But those heading off to college shouldn’t feel too discouraged: The same report that gave such dismal student loan numbers also pointed out that college is a still a worthwhile investment, and can lead to salary increases and better employment opportunities for graduates. The best way to avoid getting too far into debt while at college is to prepare yourself. Below are 7 tips that can help you avoid overwhelming debt from student loans:
Start saving early. It’s never too early to start saving, and with college tuition dollar amounts on the rise, it’s pretty necessary. Open a savings account and start socking away some of your birthday money. Once you’re old enough, get a job you can do after school or on weekends, and add as much of your paychecks as possible to your savings account. It may seem disappointing not to get to spend all of your hard-earned pay, but in the end, you’ll be thankful for every cent you can put towards your college education.
Set a firm budget. Setting a budget and sticking to it is extremely important, because it helps you know exactly what funds you have available. Budgeting can begin with the school you choose to attend; for example, if you consider attending a state school, especially one that is in your home state, you can avoid huge tuition jumps from private schools and out-of-state schools. Also, starting out at a community college to do your basic undergraduate classes before transferring over to another school to complete your major can significantly decrease your tuition. What’s more, you might be able to talk your parents into letting you live at home at least while you’re in community college, which will increase your savings. No matter what school you attend or where you live, it’s imperative to stick to your budget. Buying your textbooks used when you can, avoiding eating out, and steering clear of credit card debt are all great ways to help you keep your money in check.
If you must use financial aid, opt for federal aid, not private loans. Tuition is often more expensive than the average teenager can afford; if you need to supplement your funds with financial aid, you’re not alone. Luckily, funding is available to many students, but it can be difficult to understand what’s available. It’s a good idea to consider federal student aid over a private loan. Federal loans offer a wide variety of repayment options, as well as a grace period between your graduation and your repayment start date, and options for borrowers experiencing financial hardships. Private loans, which generally come from banks or credit unions, often have stricter repayment terms and may carry a higher interest rate than government loans. This fact sheet offers a basic overview of the federal loans available, as well as many other important considerations for borrowers.
Try to get scholarships. Scholarships are great because they are monetary awards that you don’t need to save up for or pay back. You don’t have to be great at sports to get a scholarship; there are funds available in many different areas, including:
• Character, or strong personal principles and leadership skills
• Scholarships for minorities
• Scholarships pertaining to a specific major or field of study
Try to get grants. Government grants, like scholarships, do not need to be paid back. Grants are usually awarded to students who have an exceptional need for aid, so it may be hard to qualify, but it’s worth looking into.
Educate yourself about debt. The more you know about debt, the better you can understand why you need to do things like save for college or stick to a budget. Make sure
to understand how much money you need for college, and carefully study any loans you need to take out, especially their interest rates and how long they take to repay. The more you know, the better-equipped you’ll be when you graduate college and need to pay back your debt.
Be prepared to live like a poor college student (even after you graduate.) Your awesome budgeting skills shouldn’t be retired just because you graduated college. Living below your means, or like a “poor college student,” is a key part of helping you get out of debt. Rent a cheap apartment, drive an old car, and stock up on ramen noodles. Keeping your living expenses low helps you throw more money at your student loans and gets you out of debt quicker.
If you still have questions about student loan debt, or you find that, despite your best efforts, you’re struggling to pay your bills, there are resources available. Our Ohio bankruptcy attorneys at Luftman, Heck & Associates have a wealth of knowledge about debt relief, and can evaluate your situation to help you better your situation. For a free consultation, call (216) 586-6600.