Don’t leave college with excessive education debt. These tips can help you keep your student loan debt affordable: plan carefully; cut loan costs; and take control of your budget now.
Careful planning is the first step in controlling your student-loan debt. Here are a few tips to get you started off right:
Borrow only what you need to cover the cost of education. The more you borrow, the more you have to repay – with interest.
Determine how much education debt you can afford to repay by analyzing future earnings. Try to keep monthly education loan payments to less than 8 to 10 percent of your gross monthly income. The U.S. Bureau of Labor Statistics has wage information.
Enroll in a tuition payment plan, which lets you pay in installments rather than a lump sum. Check with your school to learn if it offers a tuition payment plan.
Complete your degree on time. You will accumulate more education debt as you extend your school enrollment.
Keep a file of your education loan documents and other financial aid papers. Or access information about your federal loans in the National Student Loan Data System (NSLDS).
Cut Loan Costs
There are several strategies you can use to help reduce the cost of borrowing for college. These are just a few:
Prepay your federal loans. You are permitted to prepay federal student loans without any financial penalty. If you can afford to increase your monthly payment, and direct your lender to apply the extra amount to the loan principal, you can reduce the total interest you pay on your loans.
Automate your payments.You may qualify for a 0.25 percent interest rate reduction on your Direct Loans if you permit your payments to be deducted automatically from your bank accounts.
See if you qualify for an interest deduction. You may qualify to deduct up to $2,500 of the education loan interest you paid during the tax year, subject to income limits and other restrictions.
Benefit from subsidized loans. Undergraduate students who demonstrate economic need may qualify for subsidized loans. The federal government pays the interest that accrues on these loans while you attend school and during periods when you are authorized to defer loan payments. To determine your eligibility for subsidized loans and many other forms of financial aid, you must complete and file the Free Application for Federal Student Aid by the date recommended by your school.
Pay the interest on unsubsidized loans.Interest begins accumulating on unsubsidized student loans as soon as the loan is disbursed. If you can afford to make interest-only payments on your loans while you are in school, you'll leave college owing hundreds and perhaps thousands of dollars less.
Take Control of Your Budget
Learning to manage your money while you’re still in college is an important part of managing your student loan debt. Our Make the College Connection brochure includes a handy budgeting worksheet for helping you think about and calculate your finances.
Budget to control expenses. Include out-of-pocket education costs as well as expenses for living, transportation, personal items and entertainment. Analyze where the money goes and determine ways to cut costs. Consider buying used textbooks, using public or school-provided transportation, eating out less, and finding a roommate to share expenses. Always ask yourself before buying: "Is this something I really need?" If you don't know, then you usually can skip the purchase.
Consider working part time. Plan your work schedule so your academic work will not suffer. Investigate campus work-study opportunities. Start looking early, because work-study funds are first-come, first-served.