Student Loans in College

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In this post, I want to cover some tips for the person who is currently in college. Someone who has completed a year or two of school and already carries student loan debt.

My first set of advice would be the same as for incoming freshmen; apply for as many scholarships as you can. You have already been in college for a few years, but that doesn’t mean you can no longer receive scholarships. So, spend some time searching for and applying for scholarships. You might think, “I applied for some scholarships last year and didn’t get any, son what’s the point in applying for them now?” I have two answers to that objection; 1) Past performance does not necessarily predict future results, and 2) If you apply to more scholarships this year, you will increase your chance of being awarded some. Having a defeatist attitude towards scholarships (and student loans in general) will guarantee that you struggle in this area.

The next point is the same as one I had written for those just starting out in college as well. This would be to not take out more student loans than you need. Maybe last year you took out the maximum amount allowed, and had a bunch of money left over. Maybe you then took that extra money and spent it frivolously, treating yourself to frequent meals out and buying a new computer. If you want to graduate college with as little student loan debt as possible, you will need to stop that. Instead, take out loans to cover just what you need, and nothing more.

If you follow these two steps, you should be in a position where you don’t have to take out that much in loans. Or maybe, if you were very fortunate in your scholarships, don’t have to take out any loans at all. Now you are in a position where you have some flexibility, and could possible take some steps that will minimize the impact of your loans.

One question I’ve been asked before is “I now have enough money to pay for my education, but I have some debt from student loans I took out earlier. Should I use the money to pay off those old loans and take out new loans, or should I use that money for my tuition and avoiding taking out new loans?” The answer to that question varies on your situation. A lot depends on what type of student loan you currently have, and the loans you are being offered. If you forgot what the different types of loans are, you can brush up on them in my post here. With this flexibility, you can remove some of your “bad” loans, and replace them with “not-so-bad” loans.

For example, say you currently have $4,000 in private loans. As we’ve learned private loans are almost always a bad deal and inferior to federal loans due to higher interest rates and less protection. You have $4,000 in cash, and the opportunity to take out $4,000 in federal loans. The interest rate on your private loan is 7%, and the interest rate on the offered federal loan is $4.29%. If you were to pay off the private loan with the cash, and then borrow the federal loan, you will have essentially replaced a higher interest rate loan with a lower interest rate loan and saved yourself some money!

Look for these opportunities to reduce your loan liability, or to replace your “bad” loans with loans that are more favorable to you. If you have private loans, see if there is a way you could replace them with federal loans. Or if you have unsubsidized loans, see if there is a way you can replace them with subsidized loans. Taking such actions can set you up to pay less on your loans in the long haul.

However, the most effective way to reduce the costs of your loans is to reduce the amount of loans you will need to take. By cutting your spending and saving diligently, you could have more money to go towards tuition each year. And that means less loans needed to be taken out. Of course, as I mentioned first, looking for scholarships and grants can help greatly. I’ve talked to several people who gave up on looking for scholarships after their freshman year. Don’t do that! There could be a lot of free money out there that you are missing.

You are getting close to graduation. Graduation creates a lot of change in your life, and leaving school to go into the working world can create some new stress. In this tumultuous and stressful time, wouldn’t it be nice to know that you don’t have to worry about excessive student loan debt? By following these steps, you can ensure that you graduate college with a manageable level of debt that won’t burden you as you enter adult life.

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