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Private Student and Home Equity Loans: Both Options for Student Financial Aid

By Brentt Taylor

With the price of tuition increasing for colleges across the world, it is becoming increasingly difficult to secure a continuing education for child. Parents have had to resort to increasingly desperate measures just to keep up with the bills. However, there are ways in which families can leverage their resources in order to pay for a college education for the kids. This article will discuss two of the considered options for student financial aid: private student loans and home equity loans.

What are private student loans?

Private student loans are loans that are given through entities other than the government, such as a bank or credit union. These types of loans can either fully replace or supplement federal loans.

The pros of private student loans

- Private student loans usually have deferral and forbearance options that can help a borrower extend a loan if necessary. Overall, there is usually much more flexibility in a private loan than in a public loan.

- Private loans are competitive. A student has the ability to compare loans and decide on the underwriter with the best terms. With public loans, the interest rates and terms are usually set in stone, leaving no room for the market to drive down prices.

The cons of private student loans

- Private loans that are made to students will usually have higher interest rates because most students do not have an established credit history. This can create a problem with payback options, as private underwriters usually do not exercise much flexibility in the terms after they have been set.

- Private student loans usually contain fees. Aside from the interest rate, private student loans will usually have a fixed cost of administration fees that can take a huge chunk out of the pockets of a borrower. Under certain circumstances, these fees can also rack up interest.

- Private loans must usually be secured. Although there are some options for unsecured private student loans, they are few and far between. Most private loans must be secured with a large asset, which can cause problems for families if payments are late.

What are home equity loans?

Home equity loans are loans for education that are secured against a piece of real estate. Often called a “second mortgage,” a home equity loan is usually an option for families that do not have a great deal of money saved for their children’s education.

The pros of home equity loans

- Because home equity loans are secured by a relatively safe asset, they usually come with much lower interest rates than private student loans. This can save a borrower tens of thousands of dollars over the life of a loan.

- Home equity loans are much less bureaucratic. Because a large asset such as real estate drastically reduces the risk to the underwriter, they are more than willing to reward you with a much lower fee for borrowing the money.

The cons of private student loans

- Having to securitize a loan with real estate is never easy psychologically. Payments must be made and terms must be as flexible as possible to ensure the safety of the security if a late payment must be made.

- The housing market can affect the loan as well. If the house suddenly loses equity in the market, homeowners can find themselves underwater on their mortgage, which can quickly become an untenable situation.

Avoiding Student Loan Debt

It’s possible for a young adult to experience the total college experience or obtain a marketable degree without accumulating a ridiculous amount of student loan debt. Most parents plan for their child’s future college education without taking into account the fact that they can’t control what their adult child ultimately does after turning 18. Some of the best laid plans can turn to dust so it’s always best to have backup ideas when it comes to college planning.

Some parents take a tough approach to their child’s college planning. They figure their child can pay his or her own way through college. But when their child threatens to go into the military since the military pays for college, they have a quick change of attitude.

Don’t count on in-state tuition

One of the first mistakes parents often make is assuming their son or daughter will save money by attending a college in their home state. Many states offer special scholarships that are only good if a child decides to attend a state school. Compete for scholarships that allow a child to go away to college.

If a child does decide to attend college out of state, consider community colleges with residential halls or dorms for a less expensive but still authentic college experience. Some students are able to pay cash for college instead of racking up student loan debt by attending the more affordable community college for the first two years.

Focus on a realistic degree

Another college planning pitfall is encouraging a child to go to college without any realistic or specific goal in mind. Be aware of the fact that the most lucrative and in-demand areas of studies such as nuclear medicine often have waiting lists to be accepted into the program. College students can accumulate tens of thousands of dollars in debt because they switch majors or programs. After committing to a program, make sure to apply at least one year in advance to avoid being put on a waiting list.  Research different fields of study first to make sure a particular degree will result in a job with an accompanying desirable salary.

Take advantage of what’s free

Save money on college tuition by taking advantage of advanced placement classes in high school. Consider taking college level placement exams. However, check with the college or university to find out how many credits are transferable. Some high school students are able to receive college credit through dual enrollment programs that grant both high school and college credit at the same time.

Budget for more than just tuition

It goes without saying that college tuition is expensive. Many colleges and universities have had regular tuition increases due to the recession and other factors. Start saving money as early as possible. Many students and parents make the mistake of saving only for tuition. Plan for housing costs including heating bills if the student lives off campus, but not at home. Save money for car expenses since a student may need to provide his or her own transportation to get to internships, student teaching or practicum.

Encourage college student to work

Paying for college with cash is not easy for most middle-class families. However, it can be done with the right strategies. Encourage a child between 8 to 16 hours a week at a part-time job, realizing a college-student can only juggle so much. Some of the best jobs for college students include tutoring other students, working as a residential assistant in a dormitory or serving food. Avoid pizza-delivery jobs that may increase car insurance or jobs that require too much commuting or gasoline.

 

Attending College: The Path to Success or Downfall?

Throughout a typical child’s academic career, college and university options are praised as being the pathway to a successful and professional future by teachers, school administrators, guidance counselors, and the average parent. However, it is becoming less clear whether or not a college education is worth the cost. The general idea is that having a degree in a particular field gives someone a better chance of securing a job, and potentially receiving a greater base pay. Few people stop to analyze the costs of attending a typical university in detail before they apply to one, realizing too late that the financial burden of higher education is one that many people cannot handle. Eventually, this crisis poses the question of whether or not a college education really is the best choice for students to pursue success.

The current state of the economy has left a great number of people in financial distress, and as a result, more individuals are applying for scholarships, government grants, loans, and other funding options for school. Funds run out quickly as competition and the sheer number of applicants rises. Though many schools offer need-based assistance through their financial aid offices, few applicants actually receive enough money to cover their tuition and book charges effectively. They are then forced to take out hefty loans from the government, a bank, or another private lender, which are only approved with a competent cosigner and usually have high interest rates and monthly payments, especially if the applicant chooses to defer it until after graduation. Finding a cosigner for these loans is incredibly difficult for many individuals as well due to the decline in the national economy—not being able to find a job or being laid off makes it challenging to meet basic needs, let alone make payments on previous purchases, causing credit scores to drop significantly and not qualify for a majority of lenders.

If a student does successfully accrue substantial funding to attend school and is subjected to an unexpected financial emergency later on, he or she is forced to repeat the grueling and nerve-wracking process of finding a loan or grant again. This time, however, he or she is fighting for the ability to finish the academic year. What’s the worse news? Late payments add an extra fifteen percent (or more, at some universities) to the original bill, making it even more challenging for the student to make ends meet. The emergency funds provided by most universities are under one thousand dollars, which in several cases is not nearly enough to cover leftover tuition costs. Tragically, many individuals are forced to drop out of school and search for low-wage jobs to pay off their debt, and all of the money they spent on an attempted education is gone forever, which can very easily be the cause of financial downfall.  Even if a student is lucky enough to maintain the necessary amounts of money, which in many cases may well exceed a staggering total of $100,000, he or she is likely going to be responsible for paying off his or her student loans after graduation, a task that could take twenty years or more depending on the case, not to mention the compiling interest, which turns the original sum into a much bigger chunk of change.

Another important financial concern that should be considered when deciding whether or not to pursue post-secondary education is that of the constant rise in tuition costs. As student loans and financial aid are becoming increasingly scarce, tuition and fees are rapidly escalating. Some rumors (or facts?) have begun circulating within the academic community that tuition increases fifteen times more quickly than inflation. This is something students and parents alike should be concerned about when applying and enrolling in a university. It is also necessary to analyze the situation in a risk-versus-benefit manner. Attending college is generally smiled upon in American culture, and it seems that nearly every student enrolled at a university was somehow influenced by another individual, be it a teacher or a family member, to attend in the first place. Unfortunately, many members of society look down upon trade schools, technical, and community colleges, and in many ways this pressures students to choose costlier universities and state colleges. Though they could earn a degree at a community college as well, it is not portrayed as glamorously as a university, and they may feel pressured into the financial woes associated with a better connotation.

When it really comes down to it, students and parents alike are forced to make difficult financial decisions regarding education. The cap, gown, and piece of paper received at graduation are becoming more and more expensive every year, with fewer financial resources remaining available to a growing mass of desperate students. In the near future, if not now, it is going to become much harder to decide whether the risk of attending a university is actually worth the ideal payoff. For this reason, students and their parents or guardians should carefully investigate all of their options before definitively deciding on the future—even though it seems like the only way to be successful is to go to college, or in other words, to take a gamble on financial stability that makes Vegas look like child’s play.

How to Evaluate Debt Relief Services

There you are, neck deep in debt with your credit cards and sundry large loans that you have taken in the past – for cars that you have bought, vacations you’ve taken and various poorly considered electronic gadgets that seemed indispensable at the time. You feel strangulated by all the monthly payments that you have to make to these creditors. You’re sure that the time isn’t far off when even making the minimum payments on your credit cards will be too much to afford. That’s when the calls arrive. They are from the debt relief services, and they claim that once you hire them for a small fee, they will go to work for you and arrange to have your monthly payments brought down to a fraction of what they are now. Should you bite?

The debt relief services inhabit a business area that sees a great deal of action today. The economy really hasn’t been recovering the way most people have hoped, and this has pushed vast swathes of the population to the brink. In other words, there is a large audience out there that’s looking for some form of debt relief. Desperate demand such as this is certain to attract fraudulent fly-by-night operators to any business. The financial businesses may even be a little more prone to these types than others.

The basic premise of what they offer you is simple enough. If you are in a very difficult financial position and you owe too much, they will speak with your creditors and find a way to either lower your interest rate or write off part of what you owe.

It does sound encouraging enough in concept. As with most things involving creditors, money, and hopeful-sounding shortcuts though, these things don’t play out well in reality.

As many hapless, financially troubled people have found out, many of these debt relief services are run by confidence tricksters. They have neither the intention nor the means to deliver on their promises. All they do is to charge you several hundred dollars in fees, and tell you to leave all your financial worries to them. If you do as they tell you and stop worrying about making your monthly payments, all you will gain in the process is a bunch of late fees and penalties for not paying. Those people behind the helpful marketing calls will have taken the fees you paid them and disappeared.

Let’s try a real world example

Mark, a 40-year-old family man from Baltimore was a real target for fraudulent debt relief businesses from the get-go. The year was 2011, and his hours at work had been cut back. He had $40,000 worth of debt of every description. He had three children and he was desperate for a way to not have to make thousands of dollars in monthly payments. These con artists do look for people like this. When they learn of one, the calls started coming in.

The rep who makes the marketing call and deals with the customers is usually a person with a confident, authoritative and cheerful manner. To someone who’s deep in financial trouble, just to hear a voice like that calling and telling them that there is help at hand, can sound completely convincing.

The woman on the line told Mark that her debt reduction company could easily help. The company would negotiate with the credit card companies that he had cards with and would find a way to get them to lower their interest rates. This one thing alone would help Mark pay off his car loan, his mortgage and his credit cards in a fraction of the time it would otherwise have taken him. He cheerfully paid the $500 fee that was required. Why wouldn’t he? The rep on the line told him he would manage to save as much as $3000 in the first six weeks alone.

Mark never heard from the company after he paid the fee. They would never pick up his calls. He complained to the Federal Trade Commission and they sued the company for him.

Now this is not to put you off the debt relief services altogether

There really are good, helpful services in existence that actually do the things they promise. But one does need to be careful.

For instance, many of these shady services will call you telling you that they are a nonprofit organization, and all they want to do is to help people find a way out. The fact that they call themselves “nonprofit” helps them get past the hesitation many people feel dealing with anyone who cold-calls them offering financial services. The FTC finds many of these services are in fact for-profit ones.

Some of them will call you up with a promise of help in return for a fee. When they get their $200 or $500, they merely give you a list of debt relief services in your area that might help you for a fee. Only then do you realize that what you paid them was just a referral fee. A referral is quite worthless when you can just do a little research on the Internet yourself.

But you should always stay away from debt settlement services

There are variations on the basic theme that they will use often, to try to take you by surprise. In one of the most tempting ones, they will call you and tell you that they can negotiate with your creditors to actually write off half of what you owe.  They call this “debt settlement”. Now unless you go to bankruptcy court and file, a thing like this can only be called plainly fanciful. This kind of thing doesn’t exist. The FTC and many consumer organizations try their best to warn people away from the debt settlement businesses altogether.

Do many people get hurt doing business with these scammers?

There are thousands of horror stories that the FTC gets to hear every year. These scammers will target the needy, the poor and the vulnerable – anyone who will pay them. All they want is to get someone who will sign up and pay them the fee upfront. That’s all they need. They can promise anything, because they have no intention of even trying to deliver.

How do you tell the good debt relief services apart from the bad ones?

If it’s a legitimate credit counselor or debt relief service that you’re speaking to, you don’t ever hear a blanket promise of anything. They don’t sound overly hopeful. They will always ask to take a close look at all your financial papers to come up with a custom-made answer for you. There is no one-size-fits-all answer to these things. Often, they won’t even accept you. They’ll tell you upfront that there is nothing they can do to help you, given your situation. In general, the legitimate services will only accept one out of five applications. If they finally do accept you, they will draw a plan up for you that will usually involve your having to make payments for five years. You make a payment every month to the debt relief service, and they pay a slice out of it to your creditors.

The way to go then is…

You must never deal with a company that doesn’t seem to have a custom-made plan in mind. This should be what you look for when you try to find an honest service. It’s the only way that a service such as this can work. No matter what, it is never a good idea to respond to a service that resorts to cold-calling for new clients. Flyers and radio commercials aren’t good ideas either. Looking up the website of The National Foundation for Credit Counseling for a referral could be a good way.

Whatever service you do consider, you must make sure that you shop for the best offer. You could go to each company that you consider and see how they treat you. They should have an actual credit counselor who spends at least a half hour trying to grasp what your financial situation really is.

You should ask a lot of questions about what exactly they will do for you and what exactly is expected of you. They should be willing to talk about all of it.  According to the Consumer Federation of America, the fee involved should only be $50 or thereabouts. If they ask for a monthly maintenance fee, it shouldn’t be more than $30 or so.

It is always an excellent idea to talk to your local consumer protection office or the BBB before you make a move.

Student Loan Consolidation: A Welcome Relief

New college graduates armed with the potential to earn fat paychecks dream of home ownership. They think of purchasing fancy cars and whatever else their new spending powers allow. Those dreams are short lived, at least for some time, when they’re confronted with the crippling reality of repaying student loans. Student loan consolidation furnishes a welcome life line for students looking for a way out of insurmountable debt.

The Consumer Financial Protection Bureau in April 2012 reported the total outstanding student loan debt as being just over $1 trillion. One trillion! That’s more than the amount owed by all the credit card holders in the United States. That alone should convey just how BIG the problem with student loans really is.

Student debt was one of the major issues in the presidential race between President Obama and Mitt Romney. That should also convince you of the enormity of the problem.

Students last year took out a whopping $117 billion in federal loans. They really had no choice. Without these loans the rising costs of public, not to mention private, education would put a college education out of the reach of many citizens.

Once out of college students are faced with making monthly payments that are in many cases as high as a mortgage payment.  Financial institutions are thus unwilling to fund mortgages to these first time buyers because the addition of a mortgage would significantly raise their debt. The guidelines dictating limits on debts would immediately disqualify persons whose credit card payments, car loans and student loans take up a significant part of their income. Include a mortgage and tax payments from receiving a mortgage and they’ll be well over the limit. The general rule is that total debt owed should be less than 45% of one’s income.

Graduates therefore have to find ways to lower their monthly student loan payments if they hope to qualify for a car loan, mortgage or those other niceties in life. One solution is to consolidate their student loans. Student loan consolidation will extend the length of the loans but lower monthly payments. A mortgage or car loan could then be within reach.

Debt consolidators typically offer rates as low as 3-5% with repayment terms of up to 25 years. While that may seem like a bottomless pit to many it is the only way that some graduates can move on with life. Jenny Stewart, a graduate of New York University, can relate. Getting the loans for tuition proved rather simple. She didn’t think about the amount that she would one day have to pay back, not until one month before the due date for loan repayment. Student loan consolidation gave her a way to simplify her finances and lower her monthly loan payment.

Ms. Stewart, like many other graduates, recognizes that there is something to be said for student debt consolidation. It is not suitable for every instance though. For instance, consolidation won’t lower the interest rate on Federal loans which now carry a fixed interest rate. Even so graduates use loan consolidation to:

These benefits serve the graduate well in the long run. Negotiating new terms on their loans make it possible to pay on time and without defaults. In the long run it will improve their credit scores and financial outlook and give them a better quality of life.

If you want to consolidate your student loans you should always ask the consolidator about any origination fees, prepayment penalties and what the maximum interest rate will be. Read carefully the terms and conditions and have someone read it for you as well. Most important is the need to ask questions for clarity on the things that you don’t understand.

Dealing with Student Loan Debt

As the saying goes, there’s little point in crying over spilled milk. If you’ve found yourself saddled with a mountain of student loan debt that has now spilled over into your life and peace of mind it is time to move forward with a plan of action. Because of a 2005 law you cannot write off student loan debts except in very rare cases, so it is up to you to figure out a solution to pay off these debts while maintaining a comfortable lifestyle.

Update Your Mindset

You may feel discouraged and angry about your student loan debt load. You may feel that you’ve been bamboozled by school advisors, financial aid officers and even loved ones who told you that taking out college loans was normal and worthwhile. Get all of that anger out of your system in a productive way and change your mindset starting today. The debt is here, so now you have to manage it to the best of your ability.

Also, while you may not be able to wave a wand and make your own debt disappear you can pay a younger person a favor by advising them of your situation and how they can avoid taking out so many loans. You can also call your state representative and support petitions to help young people who are dealing with overwhelming student loan debt.

Get on a Graduated Plan

If cash flow is an issue, call your lender to inquire about a plan to make a low payment today that gradually increases with time. In many cases you make an interest-only payment. With a low monthly payment now you have time to build your career and to work on increasing your income in the future. When the monthly payment amount does rise after a few years you might be in a better position to afford it. However, before you opt for a graduated payoff plan consult the lender to find out how this will affect the total amount of interest you’ll pay over the course of the loan.

Aggressive Payoff Commitment

If you have sufficient income and cannot stand the idea of making a student loan payment for 20 to 30 years commit to an aggressive payoff plan. Send extra money with your regular payment each month and tell the lender to apply it to your principal balance. Depending on how much extra you pay each month you could slash the duration of your loan to just a few years instead of multiple decades.

Dealing with student loan debt is stressful, but instead of running away from the problem it’s best to face it head on. Be proactive and communicate with your lender to find a solution.

Resources:

http://www.huffingtonpost.com/2012/08/14/private-student-loans-bankruptcy-law_n_1753462.html

http://www.asa.org/repay/options/graduated/default.aspx

How to Repair Your Credit Score

Improving your credit score takes time – there are no quick fixes. In fact, any method that promises a “quick fix” for your poor credit score will likely backfire. Ideally, the best way to improve a credit score is to manage credit responsibly. If you’ve failed to do that, there are ways to help repair your credit history and slowly but surely improve your credit score.

Check Your Credit Report
Once a year, you can request a free copy of your credit report. This is an important step to take because it allows you to review your report and check it for any errors that could be negatively impacting your score.
In particular, make a note of the open accounts listed on your report and make sure the totals owed for each are accurate. You’ll also want to make sure there are no late payments incorrectly reported on your account. If you do find errors, contact the credit bureau and work with them to dispute the erroneous reports.

Pay Bills On Time
This sounds like common sense, but it can be very easy to overlook a bill that’s due. To make it easier for you to pay your bills on time, set up payment reminders that will alert you via text or email when your bill is due.
You can also enroll in automatic payments if you habitually forget to pay your bills on time. That way, bill payments are automatically debited from your bank account. Even one missed payment – whether it’s a day late or a week – can drastically affect your credit score.

Reduce Your Debt
While this is easier said than done, one of the best ways you can begin improving your credit score is to reduce the amount of debt you owe. Avoid accruing new debt, and instead begin working with your lenders to arrange a payment schedule that works within your budget.

If you have debt on multiple credit cards, work on paying off the highest interest rate cards first, while maintaining your minimum payment on lower interest rate cards.

Consult a Credit Counseling Service
Every state has non-profit groups designed to offer credit guidance to consumers. If you find you’re having trouble paying bills on time or paying off debt, a credit counseling service may be able to help you find a payment solution that works for you. Often, these programs are available for little or no cost.
Improving your credit score takes time. While the task may seem daunting, improving your credit score and paying off existing debt will be worth it in the long run. By changing your old habits now and learning to be responsible with credit, your score will improve over time.

Five Ways to Pay Off Student Loans

By Janice Forrest

Going to college was the easy part. Paying off your student loans is the hard part. And if you’re not careful, it may take you a lifetime to do it. In the meantime, making your monthly student loan payments for the next ten, fifteen or thirty years will leave you feeling drained.

Some Startling Facts

According to Finaid.org, student loan payments are strangling a lot of college graduates. They offer some startling facts. For example:

• 65% of 4 year undergraduate students graduate with student loan debt.
• The average student loan debt is over $23,000.
• 14.6% of student loan borrowers graduated with over $40,000 in debt.

Instead of spending a lifetime digging out of student loan debt, the smart graduate will work to pay off their educational loans early. By creating a plan and sticking to it, student loan borrowers can pay off a small loan in one to three years and a moderate loan in four to six years.

Five Ways to Pay Off Your Student Loans

Here are five way things you can do to get out from under your student loans early so you can stop paying and start living.

1. Eliminate extras: Cut out designer coffee, movie nights and dinners on the town. You can use the cash you save to pay down your student loan debts.
2. Sell your car: The money you spend on car payments, insurance and gas can be reallocated to lightening your debt load. Use public transportation or get a bike.
3. Move home: Getting out from under Mom and Dad’s thumb may be a dream- come-true. But if you stay at home for an extra year you can chip off a big chunk of your debt.
4. Take a second, or third, job: By taking a minimum wage job and working twenty extra hours a week you can earn seven thousand additional dollars towards your student loans in one year.
5. Sell your stuff: It’s just stuff. And most of it you probably don’t need. Cashing out your trash will help slice your student loans.

What Not To Do

Don’t be tempted or get too creative. You may regret it. Some solutions may seem attractive at first, but in the end, they’re a recipe for trouble. Here are a few tricks you’ll want to avoid:

1. Skipping payments: If you fail to pay your student loans or don’t pay on time, your credit rating may be adversely impacted.
2. Using your credit card or a home equity loan: Rolling your educational debt into another loan won’t solve your problem. It will just create more debt.
3. Cashing out your retirement funds: If you tap into a 401K plan, you’ll likely take a big tax hit. In the end, you’ll end up losing money instead of saving.

Don’t spend the rest of your life paying off your student loan debts. Make a plan and stick to it. If you do, you’ll be out of debt before you know it.

Applying for Student Auto Loans

Living away from home for the first time in your life may be fun but it isn’t easy, especially if you don’t have your own car. Fortunately, several student auto loan options are available. Purchasing your first car with your own money may be one of the highlights of your teenage life; however, you need to consider a number of factors when you’re choosing a student auto loan.

Benefits of Obtaining Student Auto Loans

Commuting from your place to university daily can get tiring, especially if you’re usually up all night studying (or partying!). Since most university students don’t have extra cash lying around to purchase a car, student auto loans come in handy. If you’re still on the fence trying to decide whether or not you should apply for student auto loans, here are a couple of points to consider:

* Having your own car is a definite plus when it comes to convenience and time management. You no longer have to jostle through the morning commute or risk being late due to scarcity of public transport.

* Once you take out a student auto loan, you’re making the first move toward establishing a good credit record. Pay back your loan on time and you help build an excellent credit rating, which is going to be an advantage when you enter the “real world”.

Student Auto Loan Issues You Should Keep in Mind

In case you don’t have a stellar credit record, don’t be discouraged. Quite a few lending companies are willing to help people with low credit scores. You do, however, have to pay bigger monthly premiums and interest. Another issue you have to remember regarding student auto loans is that you don’t need a co-signer if the amount you’re borrowing is under $25,000, a reasonable amount for a new car. Your main purpose for taking out a student auto loan is so you have your own means of transportation. Your car doesn’t have to be a top-of-the-line model; that kind of car you can buy when you have a regular job and a steady income.

Some lending companies are more flexible than others when it comes to the maximum allowable amount for loans. If you’re targeting to purchase a higher-priced car, you may need to spend more time shopping around for a lender willing to let you borrow the money you need. When you are approved for a student auto loan, make sure you make the monthly payments on time so you can have an excellent credit record right from the beginning. The most important thing to remember is to pay before the deadline and to never miss a monthly payment. Failure to pay responsibly will mar your credit record, and may also cause you to lose the car you worked so hard to buy.

How to Avoid Student Loan Debt

Mark Kantrowitz of FinAid.org suggests that college students shouldn’t borrow more than their expected starting salary. But in difficult times, it is almost impossible for students to accurately estimate what they’ll make when they graduate and some remain unemployed for years. The best course of action is to avoid student loan debt at all costs by planning ahead, getting into the right mindset and being smart about your money.

Can You Really Afford This College?
Many people go to certain colleges because of the status (keeping up appearances) or because they believe it will guarantee them a job upon graduation. But the truth is that graduates of many top-rated schools have a hard time getting jobs just like everyone else. They also have to deal with an undue load of debt due to their school choices.

In a 2011 CNN Money article Cornell University graduate Meghan O’Halloran says, “I thought getting a job would be a snap.” But she had a very difficult job finding employment.

After you fill out your FAFSA (Free Application for Federal Student Aid) colleges can estimate how much you would have to come up with after they apply any grants and other forms of student aid other than loans. The amount left over, your student obligation, should be reasonable enough that you can pay the tuition bill off with cash at the beginning of each semester using your own money. Remember that in-state colleges often offer students better financial aid options, including state grants. File your FAFSA as early as possible to ensure that you have time to make the right financial decision.

Start a Summer Job in High School
If you’re an ambitious young person, the summer of your sophomore year is ideally the year to start working and saving up for college. Look for an after-school job and summer job—save up your earnings in a CD (certificate of deposit), 529 plan or other type of savings account that you can’t touch until college.

If you’re not excited about working during high school, think about how much you’ll have to work five to 10 years or more down the line if you have tens of thousands of loans with interest to pay back.

Scholarships
Some students falsely believe that in order to get a scholarship or grant you have to have top scores in high school. The truth is that there are a wide variety of scholarships available to students for accomplishments besides grades—what you really need is the work ethic to find and apply for them.

For instance, some students can apply for programs designed for student athletes or who have participated in community service during high school. If you’re a member of a school club, ask your organizer if there is a scholarship program for active members.

If you go to your guidance counselor’s office, he can most likely provide you with an updated book of scholarships available to students like you. You can also find this information at your public library. Dedicate a week after school to go through the entire book, identify scholarships that you qualify for and prepare applications to each of them. Ask your teachers and advisors to help you with the applications.

Get a Loan from Relatives
If your relatives have the means but for whatever reason are resistant to donating money to pay off your tuition, borrow money from them instead of a bank. Negotiate reasonable terms, such as zero or one percent interest and get it in writing. Better to borrow from an understanding family member than from a bank, which might charge you a high variable interest rate and ruin your credit in the case of a default.

Plan to Work through College
The first thing to do when you know the college you’ll attend is to start putting out applications in that area for a part-time, flex-time or full-time job. If possible, find a job that allows you to study when things are slow. If you qualify for a work-study program (consult the college’s financial aid office) the school will help you find a job that allows you to study while earning wages.

Stay Off-Campus
The cost of staying in on-campus housing is usually inflated compared to getting your own off-campus apartment with a few roommates. You can save a significant amount of money each semester by simply living in a room or sharing an apartment with other cost-conscious friends. It might be a longer walk to class and you might have to deal with a few annoying roommate issues, but remember that this is only temporary.

Community College Transfer
Going to a community college does not mean you’re not smart enough—in fact it means that you’re probably much smarter in terms of economics than students who choose to go to an expensive college for four whole years. Tuition at community college is usually less costly and many universities accept transfer credits from qualified community colleges.

Also, if you find yourself in a situation where you are having trouble affording your college tuition at an expensive school, don’t be afraid to swallow your pride and take the appropriate action. Transfer to a more affordable school or take a year off to earn money and get yourself into the right mindset about your future. Avoid being pressured into expensive private student loans, which often come with more restrictive terms.

Circumstances vary by student, and many still choose to take out some form of student debt to go to college. But if you’re wise, hard-working and resourceful you can avoid or at the very least minimize debt obligations related to your education.

Sources:

Isidore, C. (2011, May 17). The Great Recession’s lost generation. CNN Money. Retrieved from money.cnn.com/2011/05/17/news/economy/recession_lost_generation/index.htm

Wang, P. (2010, Apr. 8). Can you afford to pay for college? CNN Money. Retrieved from money.cnn.com/2010/04/07/pf/college_debt_loans.moneymag/index.htm

Alderman, J. (2012, Mar 30). Can Your Family Afford College? National Foundation for Credit Counseling. Retrieved from financialeducation.nfcc.org/2012/03/30/can-your-family-afford-college/