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6 Keys to Minimizing Student Loan Debt

If you’re a senior in high school who’s planning for college but you haven’t yet picked your school, you’re in the sweet spot.

By: Jeff Mictabor
Category: Finance:Loans
: Education:Financial-Aid
Posted: Mar 17, 2011
Updated: Mar 17, 2011
Views: 246

If you’re a senior in high school who’s planning for college but you haven’t yet picked your school, you’re in the sweet spot.

The decisions you make in the coming months will define your life in more ways than you can imagine. Your choice of college and major could allow you to enjoy life after graduation relatively unburdened by debt from student loans, or you could end up saddled with a financial burden that could interfere with you being able to buy a car, qualify for a credit card, rent or own a home, or in some cases, even get a job. In other words, now is a great time to pay attention!

Few decisions are more important right now than where you go to college and what you study. These two decisions will largely control how much your education will cost.

Cost, more than any other single factor, will determine how much student loan debt you’ll be carrying when you leave school and how much financial stress you could be facing after graduation.

1) Know your realistic earning potential as a new college grad.

First and foremost, know the average starting salary of the career path you plan to embark upon. Don’t rely on “average” salaries for a profession, which are often skewed by the higher salaries earned by workers with more seniority and experience. Dig deeper and find out how much you can reasonably be expected to make in your first year on the job.

As a general rule of thumb, if you’re going to use student loans to pay for school, limit your borrowing to no more than the amount you can reasonably expect to earn in your first year of full-time employment, assuming that you’re working in your chosen field.

And as long as you’re researching careers, spend some time looking into the overall occupational outlook for your desired profession — what kinds of jobs are available? what’s the unemployment rate for your chosen field? are recent grads getting hired to do this work or are most of the positions going to more experienced workers? — and how likely you are to be working right out of school.

2) Know what different college decisions will cost you.

About two-thirds of college students take on at least some school loan debt in pursuit of their college degree. For these students who take out college loans, the average debt burden is currently almost $24,000, according to

But as with job salaries, don’t make the mistake of being fooled by averages. Your own college loan debt levels can be much higher than average if you attend a private school or an out-of-state public university or if you choose to live on campus while in school.

By the same token, you may take on much less debt than average in student loans if you attend an in-state school, live at home, or study for two years at a community college before transferring to a four-year institution.

3) Educate yourself about student loans, and only use them as a last resort.

Other factors that can affect your need for school loans include whether or not you (or your parents) have been able to set aside money for your college expenses and for how long; how much financial aid you’ve been able to amass in college scholarships and grants; and whether you’re a work-and-save or a work-and-spend kind of person.

Having a good understanding of college loans and of how money, personal credit, and interest rates work never hurts either.

4) Plan to graduate in four years or less.

Only slightly more than one-third of college students now finish their undergraduate degree within four years. This trend has significant financial implications because the more time you spend on campus, the more expensive your degree becomes.

If your choice of major has relatively modest earning potential, endeavor to complete your degree as fast as you can, particularly if you’re going to be relying even partially on college loans.

An extra 12 to 18 months on campus not only means another year or more of tuition and fees (and taking on even more school loan debt to cover those additional costs), but your existing student loans, unless they’re federally subsidized, will accrue interest during that time as well, before you’re asked to start making payments on them.

With bigger student loan balances and months more in accumulated interest charges, instead of having your school loans paid off within the standard repayment term of 10 years, you may find yourself still making college loan payments well into your late 30s or 40s.

5) Have a plan, and stay on track.

One important key to graduating quickly, saving money on college course fees, and cutting back on your need for school loans is to have a good idea of your education and career goals and to avoid making drastic course changes after you’ve already invested some time in your declared major.

If you find that your initial choice of major won’t make you happy or you don’t have the skills or aptitude to carry out your initial plan, try to find an alternate major or field of study that can take advantage of the coursework you’ve already done so that you don’t have to start again from scratch in earning credits toward your degree.

6) Have a backup plan.

There’s no better time than right now to be starkly realistic about how much a college education costs. If you plan to rely on family assistance or a part-time job to get you through college, sketch out a Plan B in case something happens to change your job or your family’s financial situation.

If you’ll be living on campus, could you move back home to cut room-and-board costs? If you won’t be working, could you start? Could you transfer to your state public university or to a local community college?

Also make sure to familiarize yourself with scholarship and grant resources, federal education loans and private student loans (and the difference between the two), and other ready sources of money for college that you can turn to should you need to.

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