Guide to Managing Student Loans and Minimizing Student Debt

As the cost of college continues to increase, more and more students are needing to take out student loans. The national student loan debt has risen to an unprecedented amount — just over $1.6 trillion as of 2019. This is why it is of the utmost importance that college students learn how to manage and minimize their debt, both before, during, and after their time at university.

Learning how to manage your student loan debt can teach you personal finance skills — such as making a budget, sticking to a repayment schedule, and managing your credit — that can benefit you for the rest of your adult life. Below are some ways you can prepare your finances for student debt, minimize the amount of debt you take, and manage your repayment.

Preparing Your Finances Before College

A key part of minimizing your debt and making college more affordable is to start preparing financially well before you go to school. This can take a lot of forms —  such as a college savings account, applying for scholarships and grants, or making a savings plan. Whether you’re right out of high school or you’re returning to college later in life, there are several ways you can establish a successful financial plan as you start school.

Save Money

Saving money can sound like an obvious strategy. But without a proper savings plan — covering things like how much you should save, what does your budget allow, and how you’re going to save the money — your savings practice could fall apart quickly and end up not being as robust as it could be. Take some time to research some savings strategies for prospective college students as you’re making your plan, to ensure you get the most out of your money.

Take AP Classes

If you’re still in high school and have the option to take AP classes, this is a great opportunity for you to save some money and time before heading to college. Many AP classes go towards college credit once you pass the AP test. They’re also typically offered at a discounted price for high school students. This can reduce the number of classes you need to take in college, as well as prepare you for college-level curriculum.

Research Financing Options

In addition to savings and scholarships, you should research the other college financing options. These include:

• Private loans: Private student loans come from independent lenders, and are not subject to federal government loan terms.
• Subsidized and unsubsidized federal loans: While they are both federal loans, subsidized loans don’t accrue interest while you’re still in school, while unsubsidized loans do. You must meet certain criteria to qualify for subsidized loans.
• Federal work-study: This is an option for students to work for their university. While on work-study, you can receive your paycheck directly, or have it applied to any outstanding tuition balance. You must meet certain requirements to qualify for work-study.
• Loan cosigners: If you have poor or no existing credit, having a cosigner will help you qualify for a loan you may have been previously ineligible for. Cosigners are responsible for the repayment of the loan if the loan recipient is unable to pay.

Complete the FAFSA

Before you apply for any private loans, you should fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA will tell you what federal assistance you are eligible for, including state and federal grants, loans, and work-study, as well as how much they’re offering.

You don’t have to accept all the aid that FAFSA offers you — although, federal grants and work-study are always excellent options to take whenever they’re offered, as they don’t involve repayment.  FAFSA’s breakdown can help you budget more effectively, as you’ll have a clearer picture of what funding is at your disposal.

Apply for Scholarships

Similar to grants, scholarships are a great way to fund your education without having to worry about repayment. There are thousands of scholarships available for all kinds of students studying or hoping to study in all kinds of fields.

State education boards will often have scholarship listings that are specific to your area, and the university you’re applying to will most definitely have a scholarship office at which you can search for opportunities, as well as ask questions. Many scholarships require essays, so it pays to do some research on how to write a strong scholarship essay.

Pick the Right School

When you’re looking at colleges, it’s important to consider not just what you want to study and where, but the cost discrepancies between different kinds of colleges. For example, in-state schools often offer cheaper tuition for residents than out-of-state schools, and private universities are more expensive than public universities.

Learning the difference between for-profit and non-profit colleges will help you understand how your tuition money is being spent, or why tuition prices may increase. Considering these factors doesn’t mean you have to sacrifice your dream school — it just means that your budget should factor into your college choice as much as your educational desires.

Minimizing Debt During College

What we’ve discussed above are great ways to save money and reduce debt before heading off to college. Nevertheless, college is a long-term commitment, ergo you will need to develop ways to save money and reduce debt while you’re attending school. Here are some money-saving strategies that current students can use to improve financial health while pursuing a degree.

Make a Budget

Virtually everyone can benefit from having a budget to manage their everyday finances. It’s especially important to have a comprehensive budget when you’ve got debt, such as student loans. Crafting a budget may seem difficult, but there are some easy tips that can help you make a personalized budget that suits your lifestyle and factors in your debt:

• Audit your spending: The first step in creating a strong budget is to sit down with your previous bank statements and audit how you’re spending your money and where. Write down non-negotiable and recurring spending, such as rent, utilities, groceries, and student loan debt. Use these numbers, in comparison to what you make in a month, to make the basis for your budget. A good budget should include funds allocated for enjoyment, as well as necessities.
• Prioritize extra funds: While auditing your spending, you should keep track of all non-essential or extra spending and ask yourself if your priorities match your spending. While you’re in debt, you should make efforts to prioritize paying down that debt — such as cutting out your daily latte or weekly take-out and reallocating those funds to your debt payments. The key to this step is remembering that it’s temporary, and that it’s OK to treat yourself, in moderation.
• Find the right tools: The right tools can turn both making and maintaining your budget from a stressful, difficult task to an easy-to-manage monthly routine. There is no one-size-fits-all budget style but with the variety of budgeting apps available, you can tailor your budgeting style to whatever works best for you.

Take Advantage of Student Discounts

Several local, and even national, businesses and services offer discounts for current college students. Taking advantage of these discounts is a great way to save some money on your day-to-day spending. There may even be places on campus that you can cash in a student discount, such as sporting or cultural events. This is a great reason to keep your student ID on you, as the next time you’re at your local coffee shop or bookstore, you might be able to save a couple of bucks.

Enroll in Summer Classes

Many students take classes over the summer to save money. These classes are often cheaper than they would be during the regular school year, and operate on an accelerated curriculum, so they tend to only run for a few weeks. You can take these classes online, through your university, or at a local community college. They can potentially help you graduate early, saving you more money in the long run.

However, if you take summer classes from another school, make sure that your credits are transferable to your home university.

Work Part-Time

Working part-time is a reality for a lot of students getting their degree, either through work-study or at an off-campus job. While working in college can help offset your costs, you should think about getting a job carefully, as not every student will be able to balance a dual commitment. The best thing you can do if you’re working in college is to try to find a boss that will be flexible around your school schedule, so you can still put your education first.

Find Side Gigs

Whether or not you work part-time during school, you could also consider finding a side hustle to earn even more cash. This could be a more sustainable alternative to part-time work if you don’t have much free time, or it could supplement your work schedule. Easy side gigs include:

• Driving for a rideshare company;
• Tutoring;
• Babysitting;
• Yard care;
• Dog walking.

These are just a few of the most flexible side hustles out there — if you’re creative and see a need you can fulfill with a skill or service, there’s really no end to what you can do to earn some money on the side.

Look Into Employer Tuition Reimbursement

Some large corporations offer partial or full tuition reimbursement for their employees looking to get a higher education. Some universities also offer this option for graduates who decide to work at their alma mater. Here is a list of corporations that offer some form of tuition reimbursement and their program requirements:

• Bank of America: Employees can get up to $5,250 in job-related college courses reimbursed per year.
• Chipotle: Employees taking courses through Guild Education can get up to $5,250 in tuition reimbursed annually.
• Home Depot: Depending on your job title, you may be eligible for up to $5,000 in tuition reimbursement per year.
• JetBlue: Employees that have worked with JetBlue for two years and have previous college credit can apply for JetBlue Scholars, which offers a variety of cost-covered online courses.
• Starbucks: All benefits-eligible employees can have their entire four-year tuition covered if they study through the Arizona State University online program.
• Wells Fargo: Employees can use up to $5,000 annually on tuition expenses.

Managing Your Finances After Graduation

For the majority of students, student debt doesn’t end after graduation. This means that even after you’re out of college, it’s still important to maintain and evolve the skills you used in school to minimize and manage your student loans. Here are a few ways you can start.

Start Repaying Your Student Loans

First and foremost, you’ll need to start repaying your student loans —  or at least make a plan to do so. Your specific loan terms will help you determine how much you’re expected to pay per month, as well as how long it may take you to pay back your student loans. If you can’t make your student loan payments, you may need to seek loan assistance.

Consider Other Loan Assistance Options

If you’re unable to make payments on your loans, or your loans have gone into default, it may be worthwhile to look into loan assistance options to manage your debt. You have a few options when it comes to loan assistance:

• Loan consolidation: If you have several student loans, you may be able to combine them all into one loan. The benefit of doing this is that you will only be required to make one monthly payment, and this new loan will have a new interest rate and a new minimum payment threshold.
• Loan deferment: You can discuss with your lender about putting your loan in deferment, which means that you will have a certain period of time where you don’t have to make payments. However, borrowers usually have to meet a specific set of circumstances in order to be eligible for deferment.
• Loan forbearance: Similar to deferment, student loan forbearance allows you to skip payments on your loans without going into default. But student loan forbearance is much stricter than deferment, as the criteria to qualify aren’t as stringent. Loans can only be in forbearance for 12 months, and any loans you have in forbearance will still accrue interest.
• Loan relief: There are several nonprofits that offer student loan relief for students with extenuating circumstances — such as students with disabilities or those serving active duty in the military. Each program will have a different set of requirements for eligibility, so it’s important to do your research if this is an option for you.

It’s crucial to be wary of student loan scams when pursuing loan assistance, especially around student loan forgiveness.

Build Your Credit

If you haven’t already, you should start building your credit after graduation. Making routine monthly payments on your loans will help your credit score, but not significantly, and not if you already have a poor credit score. Building your credit is a great practice, as it opens up more refinancing opportunities for better loan terms should you want to consolidate your loans. Here are a few tips for raising your credit score:

• Dispute errors: One of the easiest ways that you can raise a poor credit score is to comb through your credit history and dispute any errors or false charges. Getting these charges removed will immediately bump up your credit score —  but it’s important to note that this strategy only works if there are errors in your credit report.
• Increase your available credit: A significant influencer on your credit score is your credit utilization percentage. If your card has a $500 limit, and you consistently use $250 every month, your credit utilization is 50%. You generally want to keep your credit utilization low, which is why it’s good to increase your line of credit when available. If you increase that $500 dollar limit to $1,000, your credit utilization goes from 50% to 25%. This improves your score without you having to change your spending habits. This should only be done if you’re confident a higher credit limit won’t tempt you to spend more.
• Set up autopay: Your repayment history is another big influencer on your credit score, and sometimes bills can slip by unnoticed and incur late fees. Even insignificant late fees can reflect negatively on your repayment history, so making sure that all your bills are set up for autopay is a great way to perfect your repayment history and raise your credit.

Save for Retirement

Once you leave college, unless you’re planning on going back for an advanced degree, your next biggest savings goal should be retirement. Having a strong retirement savings plan can help you feel at ease knowing that when it’s time for you to exit the workforce, it can be on your terms.

Many companies offer retirement benefits for employees, but you don’t have to wait for a 401(k) to start saving. Setting up your retirement plan is another reason why it’s beneficial to be organized with your student loan debt — so that you can maximize the amount of time you have to save, and have the skills to balance two different financial goals.

Get Financial Help

Everyone makes mistakes with their finances at some point in their life, especially if you don’t have the resources to become independently financially literate. If you don’t feel confident about your finances, you can always find help. Enlisting the services of a financial planner, a credit repair company, or even taking personal finance courses can help you correct your financial mistakes, and keep you from irreversible financial damage.