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Tips for Keeping Debt under Control



If You Are Still in School—Tips for Keeping Debt Under Control

  • Don't ever borrow more than you need. If you are still in school, your financial aid package includes a student loan for a specified amount. You do not have to borrow the full amount of the loan for which you qualified. If you can make do by borrowing less, request a reduction in your loan amount. Avoid high-interest loans and credit cards to pay college bills. To help you avoid additional college debt, ask your school if it offers a tuition payment plan that allows you to pay your tuition in several installments, rather than in one or two lump sums. If your aid package does not include work-study, consider asking the financial aid office to reduce higher-interest and/or unsubsidized loans with work-study.
  • If possible, pay the interest on unsubsidized loans as it comes due. If you receive an unsubsidized Stafford loan, you are responsible for paying all the interest that accrues. If you can afford to pay the interest as it accrues while you are in school, you will be dollars ahead when it comes time to repay your student loan. Accrued interest can add $50 to $70 per year for every $1,000 of education debt. Make arrangements with your lender to pay the interest as it accrues. If you are not able to pay interest as you go, prepay or accelerate payment on loans when you can. You can save a great deal of money in interest. Interest accrues over time, and the more time you take to repay your loans, the more interest that accrues.
  • Prepare a budget to help you control expenses. Your budget should include direct education expenses, such as tuition and fees, books and supplies. Living expenses, such as room and board (or rent, food and utilities if off campus), transportation costs and personal expenses, such as clothing and entertainment, must also be included. Each month compare your actual expenses to your budget. Look to see if certain expenses are "breaking the budget," or if you can reduce some expenses even further.
  • How many ways can you cut costs. Buy used textbooks. Consider public transportation as an alternative to driving a car around campus. Live at home or share off-campus housing with roommates. Eat out less. Before you buy, question whether you truly need and can afford the purchase. How many ways can you come up with?
  • As long as your academic work doesn't suffer, consider working part time. Many colleges offer work-study and other on-campus job opportunities during the academic year. Part-time off-campus employment is also an option. If you need to concentrate on academics during the school year, plan to work the following summer to pay some of next year's college costs. Consider refereeing youth games or becoming a dorm hall resident assistant to earn extra money and reduce borrowing.
  • Maintain a file of your student loan documents and financial aid information. Most student loan borrowers cannot accurately estimate their total college debt within 25 percent of the actual amount. Worse yet, many students can't find the paperwork that tells them how much they borrowed for college and to whom the money is owed. Keeping important financial aid paperwork organized while you are in school will avert big headaches when that first student loan payment comes due.

Carefully consider how much education debt you can afford to repay, based on your expected future earnings and other financial obligations. Undergraduate students are generally advised to limit their monthly student loan payments to no more than 8 percent to 10 percent of their estimated initial gross income. Many students overestimate the percentage of their income they will have available for repayment. Many students do not plan their borrowing according to what they will be able to afford in monthly repayment. Many students actually overestimate the amount they will be able to afford to pay per month. Many assume that they will be able to dedicate more than 8 percent of their estimated income to repay their loans. Research starting salaries for the field you are entering at www.jobweb.org. Use calculators on the Internet sites such as www.nelliemae.com and www.pncbank.com to calculate monthly payments based on different amounts of money borrowed and repayment plans.