By Angie Picardo
I was among the lucky few students in the U.S. that graduate college without any loans.
After two years at a local community college, I was able to apply for and win a full-tuition scholarship to UC Berkeley.
Although I didn’t feel the burden of student debt first-hand, I have scores of friends and family members both struggling with and conquering their student debt.
Based on my experience and observations, I want to share with you five tips that every college-bound or current student (and their parents) should know about reducing the amount you owe before being cast into the “real world.”
Tip #1: Fill out the FAFSA early, accurately, and be strategic about the loan package you ultimately accept
No one really enjoys filling out financial forms: from taxes to the FAFSA.
However, getting your FAFSA done sooner than later increases the probability that you will receive an aid package that is laden with grants instead of loans.
Many institutional, state, and federal loan and grant programs work on a first come-first served basis.
Although FAFSA season officially opens on January 1st of each year, it is often quite difficult to have your federal income tax return filed that early. Instead, use estimates based on paystubs and account statements and choose the “will file” tab when submitting your FAFSA.
Then remember to go back and correct your FAFSA with more accurate numbers once you do file and electronically transmit your tax returns from the IRS to FAFSA directly. Here’s a helpful guide for filling out the FAFSA.
Above all, try to garner as many scholarships and grants as possible. Free school is the best kind of school. When thinking about which colleges to apply to, consider schools based on their scholarship and loan offerings.
From there, explore what grants you may qualify for based on you family’s background or your special abilities. Once you have exhausted all of these resources for funding your education, proceed with caution.
When you absolutely need to take out loans: only rely on private loans if you absolutely must—try to rely most on federal loans. Adhere to a strict budget and avoid taking out loan for more than you really need.
Tip #2: Fully Explore the Range of College Employment Opportunities
A secret about college that you don’t really realize until you get there is that you will have tons of non-dedicated study time.
Instead of watching seven straight seasons of every Netflix show available, consider getting a job. Most colleges have career centers that list all on-campus work opportunities.
Aim for work-study positions as they usually pay above the norm since half of your wages is coming from the government and half from your employer. Also work-study can work around your academic schedule, and can be attributed directly to your tuition costs.
When filing FAFSA remember to check off the eligibility for work-study tab so you qualify for work-study positions the following year.
If you are in graduate school or an undergrad that just aces classes—consider picking up a teaching assistantship position. It pays, allows you to make close connections with professors for letters of reference, and lets you teach a subject you may be really passionate about.
As a bonus, many teaching assistantship positions include medical and dental, which can cut some more costs on your operating budget for the year.
Tip #3: Reduce your principal
If you do end up taking loans to cover college costs, those loans sometimes won’t start to accrue interest until after you graduate. Once you graduate, your federal loans will be due either in a 10-year repayment plan or an income based repayment plan that can span close to 25 years. Likewise, the extended loan repayment plan and the graduated loan repayment option allow those with federal loans to pay off their college debt over a period up to 25 years.
The best way to reduce payments down the line is to chip away at that principal before it starts to collect interest. If you have a job, try to make regular payments as often as you can towards your student loans. Summer internships (if paid) are a great way to earn a fair amount of cash to make more hefty contributions to your overall principal.
Tip #4: Consolidate and Track
After your FAFSAs are filed, W2s submitted, and loan packages signed, you will receive a package from your institution of choice that will detail which grants and loan programs your money is coming from. Management of loans while you’re in school is not very difficult because the only payment you’ll be making is towards the principal amount on your largest loan amount. Once you do graduate and you are required to make monthly payments, it can get quite difficult to track where to send checks each month. Here are a few programs that can help streamline the payment process, saving you both time and money.
- You can file for a Direct Consolidation Loan for all of your federal loans. The consolidation process is simple, free, and the final consolidated loan carries a fixed interest rate that is a weighted average of all the loan interest amounts together, rounded up 1/8th of 1%, and your interest rate cannot exceed 8.25%.
- If you are a fan of Mint.com, the popular budget management application, check out Student Loan Hero. Student Loan Hero shows all of your outstanding loan amounts on one dashboard and helps you seek out repayment resources and issues payment reminders monthly, amongst a bevy of other services.
Tip #5: Do what you love
Many recent graduates face the daunting task of making repayments in a sluggish economy. Luckily, there are a wide variety of fellowship and public service sector jobs that have built-in loan deferment stipulations to help you off your feet and aid you in building marketable skills from the get-go. The most popularized programs include the Peace Corps, Teach for America, and AmeriCorps.
For those entering a sector with high education costs — like law school, medical school — or a sector with historically low salaries, there are special fellowships and repayment programs that help alleviate the burden of heavy student loan debt.
For instance, in the health field, the Nursing Education Loan Repayment Program and the National Health Service Corps both help provide loan repayment options in exchange for service in underserved communities.
Don’t wait until you have to make your first student loan payment right after graduation to think about how you’ll manage your debt. Plan early and be strategic; it’ll help you in the long run.
Angie Picardo is a writer for Nerdwallet, a financial literacy website dedicated to empowering people to meet their financial goals.
