Pay for College Without Breaking the Bank

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.

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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

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.