The best way to reduce student loans? Don't borrow any more than absolutely necessary. One young man I know just "had" to go to an expensive big-name school. During the summers he liked to relax rather than get a part-time job. Now, six years later, he has a master's degree, makes $30,000 and has $100,000 in loans.
A second young man I know went to a junior college and lived at home, then transferred to a state college. He worked summers as an intern in his chosen field of study. Six years later he has a master's degree and just $9,000 in student loans. With his summer work experience, he started at $46,000 and figures he can pay off all his loans the first year.
I've often recommended that cost-conscious students consider starting their education at a community college. Thanks for sharing your experience.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
I come from a family with nine kids, so it's up to me to pay for my college education. I'm the music director for my school's radio station, which gives me half-tuition, and the news director for our TV news program, which pays the other half of my tuition. I'm majoring in broadcasting, so I'm paying for college by getting hands-on experience.
It pays to take the initiative to find creative solutions beyond loans.
I also recommend that before borrowing, students and their families take a hard look at whether it makes sense to go into debt and by how much.
Start with the Student Loan Advisor calculator at www.finaid.org. You can plug in your field of study, expected graduation date and loan interest rate. The site gives you the maximum loan amount you can safely handle, assuming you want to limit your monthly payment to between 10% and 15% of your income.
Say you're planning to be an accountant. With an anticipated starting salary of $47,200, you could borrow about $34,200 at 6.8% (the rate on new government-sponsored Stafford loans) and limit your payment to 10% of your income with a ten-year repayment schedule.
If you're planning to go into communications, with a projected starting salary of $34,200, you should limit your borrowing to about $24,800, given the same assumptions.
A new federal law gives students other options. Starting next year, students in teacher-prep programs who commit to teach for four years after graduation can apply for annual grants of $4,000 to defray college costs.
Also under the new law, students who work for ten years in qualifying public-service jobs can have the balance of their student loans forgiven -- a boon if you're in a relatively low-paying position (see www.finaid.org/loans/publicservice.phtml for more information).
LAST WEEK: Tackling Private Student Loans
-
M&A Is Why UnitedHealth Group Stock Is in of the 100,000% Return ClubUnitedHealth has given a master class in mergers and acquisitions over the years.
-
How GLP-1 Drugs Could Revolutionize RetirementGLP-1 drugs like Ozempic and Wegovy are already changing the way we age and manage chronic conditions.
-
How Intrafamily Loans Can Bridge the Education Funding GapTo avoid triggering federal gift taxes, a family member can lend a student money for education at IRS-set interest rates. Here's what to keep in mind.
-
How an Irrevocable Trust Could Pay for EducationAn education trust can be set up for one person or multiple people, and the trust maker decides how the money should be used and at what age.
-
UTMA: A Flexible Alternative for Education Expenses and MoreThis custodial account can be used to pay for anything once the beneficiary is considered an adult in their state. There are some considerations, though.
-
Coverdell Education Savings Accounts: A Deep DiveWhile there are some limitations on income and contributions, as well as other restrictions, a Coverdell can be a bit more flexible than a 529 plan.
-
529 Plans: A Powerful Way to Tackle Rising Education CostsContributions to 529 plans grow tax-free and are not taxed when they are used to pay for qualified educational expenses for the beneficiary.
-
Are Student Loans Being Forgiven or Not?Student Loans The House and Senate voted to repeal President Biden’s student loan forgiveness plan, but does it even matter?
-
Are Scholarships Always Tax-Free? What You Need to KnowEducation Scholarships are generally tax-free if certain IRS and other requirements are met.
-
Student Loan Forgiveness Blocked For Now Due to Court RulingsBiden's student loan debt forgiveness program is on hold until the U.S. Supreme Court weighs in.
