10 Ways to Limit Student Loan Debt
Each year as graduation season rolls around, a new crop of young adults heads off to colleges across the country where they hope to build the skills to succeed in their careers, leading to a life of prosperity. Unfortunately, many students discover that the promise of financial success from their degree is overshadowed by the heavy burden of student loan debt.
The nation’s student loan debt has climbed steadily over the last few decades, topping $1.73 trillion (with a “T!”) in the second quarter of 2021. On an individual level, the impact these loans are having on people’s lives is devastating. With loan balances commonly extending into six figures, the payments are crushing. This debt is changing lives in a real way, with borrowers deferring having children, buying a house, or saving for their own retirement, eventually forcing them to work longer. In many cases, low- and middle-class borrowers are bearing the brunt of these loans which will have a lifelong impact, as student loan debt is not dischargeable even through bankruptcy.
As of today, federal student loan repayments remain paused due to the COVID-19 pandemic. While the current pause has been extended multiple times already, relief isn’t likely to last forever, and the 41 million borrowers currently taking advantage of the pause will be expected to resume payments beginning May 1 of this year. After more than two years of debt relief, the resuming of these payments will be an unwelcomed burden on millions of people. To prevent future students from becoming overwhelmed by college debt in the future, here are ten ways to reduce the amount of student loans needed while still getting on a path to success. These tips are written for both students as well as their parents.
#1: Start Saving Early
One of the first steps you can take as a parent is to open a 529 college savings account for your children as early as possible. A 529 plan is a tax advantaged savings plan that allows you to contribute money which can grow tax free to be used for educational expenses. These accounts can be set up as soon as your child receives a social security number. Setting this up early will allow your money to grow tax free over a longer period. These plans are transferable as well, so if one of your children does not end up attending college the balance can typically be transferred to another child, if it is used for educational expenses. There are also other expenses that the 529 plans can be repurposed for such as elementary and secondary school tuition and ABLE accounts.
#2: Apply for Grants and Scholarships
Grants and scholarships are financial aid that don’t have to be repaid like loans. They’re free money! Be sure to fill out the FAFSA (Free Application for Federal Student Aid) to see what types of grants and scholarships you might be eligible to receive. Also be sure to check with the college’s Financial Aid office to see if there are any other scholarships that are available. Applications may take some time to complete but they have the potential to pay off big time!
#3: Work Summers and/or Part Time during school
Working part time during school or during the summers to help offset educational expenses can go a long way in limiting overall student loan debt. Even a few thousand dollars a year can make a big difference! Some colleges will give students free credits/classes in exchange for working on campus. Check with potential schools to determine if this is an option and if it can fit in with the student’s course schedule.
#4: Trade Schools
Trade schools have become an attractive alternative to the traditional four-year college. Trade schools offer job-specific training in a variety of fields at a fraction of the cost and time required for traditional college. In most cases the training offered by trade schools is for high demand hands-on careers such as electricians, plumbers, welders, and mechanics. Trade schools can often offer a low cost, direct path to an in-demand career with great pay!
#5: Associates Degree
An associate degree is another option for a lower cost, more direct route to a quality career. Earned in 2 years or less at a fraction of the cost of a traditional four-year degree, an associate degree can open the door to a variety of high paying careers including dental hygienist, radiology technicians, nursing, and many others.
#6: Community College
Be sure to consider opportunities at your local community colleges. The national average of community college tuition is just $3,770 annually, though with financial aid taken into account, most students end up paying far less! Completing two years at a local community college and transferring credits to a larger school has the potential to save thousands, while ultimately graduating with the same degree as your peers!
#7: Go with an In-State Public School
When choosing between traditional four-year colleges, be sure to consider public school options in your home state. According to U.S. News data, the average cost of tuition and fees for in-state public school tuition is $10,388, compared with $38,185 for private college. That is a savings of $27,797 per year!
#8: Satellite Campuses
Many state universities have satellite campuses in addition to the main campus. Tuition at these satellite campuses is often substantially more economical than the tuition at the main campus. At graduation you will be receiving the same diploma as students who attended the more expensive main campus. Living at home during this time can save on housing costs as well.
#9: Consider the Military
While the decision to join the military should be a thoughtful one based on much more than just finances, it can be a great way to pay for college. The military offers a variety of tuition assistance programs, scholarships for students enrolled in Reserve Officers’ Training Corps (ROTC) programs, and the GI Bill which in many cases will cover the full cost of college.
#10 Tuition Reimbursement
Many employers offer tuition reimbursement. While working at Gap, Inc., Starbucks, UPS, or Amazon may not be the end goal, the tuition reimbursement benefits offered by these employers (and many others) could be a great entryway to a dream career with less debt for those students that are willing to do the research and put in the work while earning their degree.
The weight of the decisions young adults are making will potentially be felt until they are in their 40s and 50s. That’s a long time to literally be paying for a decision made before their brains were fully developed. As a society, we are shackling generations of kids with considerable debt, hampering their ability to buy homes, have kids, and live well rounded lives. As those who have walked in their shoes, we must encourage better choices. Almost every career can be achieved by taking one (or more!) of the paths outlined above. The creative solutions are out there if you’re just willing to do a little research, take a little extra time, and live a little bit differently. The payoff is well worth it!