How to Minimize Your College Debt and Student Loans

By Kevin K, on March 30, 2010

During the past few years, college students have seen the flexibility in their lifestyle drastically reduced as tuition has increased and grants have decreased. An article on Yahoo! brought to light the inexperience of students in managing their finances showing a recently graduated doctor who found herself $550,000 in debt after making many bad decisions during her academic years. Stories like this are common. Students find themselves working twice as hard to pay off their gigantic debt.

Photo by alancleaver 2000 via Flickr

In this article, I will give you some tips on how to limit your college debt, so you don’t have to worry about paying back huge loans after graduating. You will have more money to spend, more to invest, while working less. In an economy that has seen the crippling of many educational endowments and financial aid programs, what can you do to get out of college with a manageable loan?

1. Consider attending a junior college for your first two years.

Junior colleges offer quality education for a fraction of the cost of private and public universities. Attending a junior college will also let you easily transition from the slower high school curriculum into the fast-paced undergraduate environment. Even compared to a public university, you’re going to save at least $15k in those two years. You’re also going to be living at home — a wise choice in this economic environment that could tack on another $12k to your savings because you will be saving on food, rent, transportation, and utilities.

Besides the financial aspects, community colleges are an affordable alternative for a variety of reasons.

2. Pay a small amount every month towards the reduction of your debt.

Remember, even low interest loans start accruing interest the day you take them out. Paying only the interest accrued each month can reduce the loan repayment period on a $10,000 loan from 15 to 10 years. Every financial aid counselor will recommend paying at least $50-$100 a month.

Sallie Mae has many programs for taking out smarter loans. In a recently published article on their website, a financial aid counselor from Cal Lutheran University said, “I always encourage students to at least pay the interest on loans while they are attending school to avoid paying interest on accruing interest…paying a little extra each month can save thousands of dollars in interest by paying down the principal more quickly.”

3. Extra majors and minors are usually a waste of money (and time).

Most graduate schools and professional programs do not show a higher preference for students that have more than one major or a combined minor. Not only will taking the extra classes lead you to take out more student loans, you will also lose precious time. Finishing your education a year earlier means you have more time to work and pay your loans back and less time that interest accrues on the loans you did take out. In fact, taking one extra class per semester or quarter is a great idea, because most schools have a set cost of tuition for full time students, regardless if it is 12 units or 18.

4. Free money is still out there, dedicate yourself to finding it.

Of course, it’s not the same as it was 5 years ago, but scholarships are still available for many students. Grant and scholarship money is available from corporations, non profit and religious organizations, and fraternities. The real scholarships are usually merit based, so don’t fall for those tricky scholarship services that take your money but don’t make a guarantee that they will find you the money. Every college has a list of scholarships available for its students.

Most special scholarships are easier to get because they are local and thus, much less competitive. Local businesses and clubs are usually the donors for most of this free money.

5. Learn how to save (and earn) money in every day activities.

In addition to making smarter choices in which college to attend and making wiser loan choices, it’s also good to know how to save money in college. I have an article that covers 30 ways to save money in college, but here are some quick tips you could follow to save money and decrease your debt. If you’re living alone, a great way to save money is to cook at home and avoid spending money on fast food. If you’re buying groceries, buy on sale and in bulk.

Finding a part-time job that can apply your educational background, such as working as a tutor, is also a great way to decrease your debt because you won’t have to take money out for personal expenses. In addition, here are 15 ways to make extra money to give you some idea.

When I graduated from college, I followed all the advice I write about. My student loan for my undergraduate degree is only $13,000 because I worked part-time during college and made wise choices. I hope this article will help you make wiser choices in college. If you have any questions, feel free to post a comment or follow me on Twitter.

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Kevin Khachatryan is a UCLA Biochemistry graduate who lives in Los Angeles, CA. As the economy began to crumble in 2008 and jobs where lost, he decided to start SmarterSpend.com as means of providing valuable information and resources about money and finance.

All posts by Kevin K

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