I always knew I was college bound, though despite my clear intentions, how I would actually pay for my college tuition never really came into question in my household. The expectation was that I?d go to a community college, then transfer to the local state school after two years ? a practical approach for someone who hadn?t saved a dime in their?savings account?for tuition.
But I wasn?t having any of?that?nonsense. I?d enrolled in advanced placement classes since my sophomore year of high school, and I refused to ?waste? my hard work?by not applying to a four-year institution directly out of high school. Plus, I wanted the freshman experience, and was determined to have it no matter the cost.
Fortunately, I was eligible for a few grants, which fully covered tuition costs through my undergraduate career. However, my financial aid package also offered me?loans for school?to take care of housing costs, books and transportation, and even though my mom lived only ten minutes away from campus (and was more than willing to have me stay at home), I wanted to live in the dorms.
Since my grants were only sufficient for tuition alone, I took out loans for school of about $2,500 in my first year. I justified doing so with the reminder that federal?college loan?rates?were ?reasonably? low (about 3.5% at the time) and that I wouldn?t have to pay them back until after graduation, at which point I?d be living it up in my dream career as? well, I hadn?t figured that out yet.
By the time I graduated with my B.A. in English, I racked up about $14,000 in loans. What?s worse is that I graduated in fall 2008, when the job market was at its worst. To avoid the realities of the recession, I enrolled back in school in pursuit of another degree that promised a greater earning potential, and took out an additional $18,000 in student loans.
I never finished the graduate program, but that extra $18,000 in debt clung to my name nonetheless.?Looking back, I would likely have still gone to a 4-year institution outright, but would have avoided college debt like the plague that it is.
Dave Ramsey on Taking Out Loans for School
There are a lot of would-haves and could-haves when it comes to debt, but at the end of the day, it?s all said and done. It wasn?t until eight years later that I heard a voice of reason speak on the perils of taking out loans for school.
After taking multiple calls from individuals strapped with student loan debt on his radio show, Dave Ramsey went on a rant:
?This is what?s going on! You?ve lost your ever-loving minds, America. You are stupid about education ? how paradoxical is that? You wander in, spend any amount to get a degree and act like the student loan tooth fairy is going to come in and pick up your stuff. There is no student loan tooth fairy! You have to think.?
How does one ?think,? exactly??Well, depending on whether you took the bait that?college loan lenders?have put out, or if you?ve still got a while to wait before college, there are a few things you can do to keep from taking out loans for school.
4 Ways to Avoid Loans for School
Start Saving Money Early
If you?re still in the black when it comes to your (or your child?s) college savings, you can take the slow and steady approach of opening a 529 plan. A 529 is a state-sponsored educational savings plan. In addition to being open to everyone, regardless of age or income, your contributions grow tax-deferred.
Attend a Community College
When it comes to?ways to save money in college,?I suppose mother does know best. Attending a community college right out of high school cuts costs on tuition dramatically. For example, a 12-unit semester (four classes at three units per course) my local community college charges $552, compared to a 12-unit semester at my 4-year state school at?$2,985.
Additionally, those who want to move on to a four-year state university have a better chance of admittance coming from a community college than fresh out of high school, since students have already demonstrated their ability to succeed in a college-level curriculum.
Live at Home
Living on campus is extremely overrated ? you pay more for a smaller living space and don?t have the finer comforts of home (i.e. free food). My dorm cost me about $5,500 for one academic school year (September through May); it was a two-bedroom apartment, and I shared my room with one roommate.
It was definitely convenient, but far from frugal. I would?ve been better off staying at home for free and saving myself from the agony of having to pay the loan back.
Apply for Grants and Scholarships
Loans for school should always be a last resort, and arguably not even an option for some. Take advantage of as many grant programs as you can qualify for to carry your education for free.
Also, don?t neglect scholarships; some do require you to put in a little work, like writing an essay or gathering recommendations, but there are thousands out there that simply require you to be of a certain ethnicity or work toward a particular field of study.
3 C?s to Reduce the Sting of College Loan Rates
If you?re already waist-deep in student loan debt, there are still ways to retain as much money in your savings account as possible instead of having it end up in college loan lenders? pockets.
Claim Student Loan Interest Tax Deduction
If you?ve been paying off your student loans, you can claim the student loan interest tax deduction. Essentially, you can claim any student loan interest you?ve actually paid in the past year. You don?t need to itemize the deduction and the maximum deduction claim is $2,500.
Consider Your Repayment Options
If you?re struggling with keeping your savings account funded, you may want to look into your repayment options. Most federal loans for school have a repayment term of 10 years with a fixed monthly payment, but you can choose to change your repayment program, depending on your current financial circumstances.
Some repayment options for federal loans include:
- Graduated Payment:?Low monthly payments at the beginning, which increase over the years. A good option for individuals whose careers afford them higher pay as they get more experience ? typically a 10-year term.
- Extended Repayment:?Payments may either be fixed or graduated, but the term is extended to 25 years. This results in smaller monthly payments, but more interest paid from college loan rates over time.
- Income-Based:?Payments are calculated by setting maximum monthly payments at 15 percent of your discretionary income, for up to a 25-year repayment term. Payments will adjust as your income increases or decreases.
Consolidate Student Loans
Another option provides convenience during repayment is to consolidate your federal loans. This route could result in a lower monthly payment and an extended repayment term of 30 years. However, it?s important to consider how college loan rates will be affected, as the longer a term is prolonged, the more college loan lenders charge in interest.
When it comes to planning for your education, there are many preemptive ways to save money in college to avoid loans for school. Be practical about what your degree can afford you after you graduate, and live within your means while in school.
Sign up for my?newsletter?and check back for the next installment of the Breaking Up with Debt series to learn how to shop for an auto loan that?s within your budget.