Wednesday, October 30, 2013

How to Avoid and Manage Student Loan Debt

Today, I'm pleased to host freelance writer Vera Reed as she offers some valuable information on avoiding the pitfalls of student loan debt and some great information on where to get money. Students and parents alike can benefit from this. Having two kids in college right now myself, I can tell you it is already time to start thinking about financial aid forms again and scholarship applications! So, I'll turn the time over to Vera.

How to Avoid and Manage Student Loan Debt
Vera Reed

Everywhere we look, from op ed pieces to highway bulletin boards, we’re told that our future prosperity is more dependent than ever on higher education.  And yet with tuition prices higher and higher, and the job market still in a feeble recovery state, more and more recent graduates emerge into the workforce burdened with an albatross of seemingly insuperable student debt.  Depending on which authority you ask, the outstanding balance for student loans is somewhere between $902 billion and $1 trillion, a staggering figure at either end of the spectrum.  What’s worse is that 12.8% percent of those loans are in default status -- and since student loans are exempt from bankruptcy proceedings, those numbers are likely to stay.

To make sure that a college education is a process of empowerment, not one of imprisonment, be control of your borrowing at every step of the way.  Here are some broad courses of action that will set your future on the right course.

Look Diligently for Scholarships

While the figures are often exaggerated, millions of dollars in scholarships go unrewarded eachyear simply because applicants fail to look for them.  This happens for several reasons.  First, potential recipients often give up before they start on the assumption that their high school transcript doesn’t merit rewards.  For one thing, many scholarships are awarded not on academic performance but by circumstances such as gender or minority status, and often in surprising ways.  For example, many people don’t realize that even partial Native American heritage opens the door for a number of awards. 

In addition to overlooking the many factors that may lead to a scholarship, some borrowers look at scholarships in an unfortunate “all or nothing” manner.  While getting a free ride would be great, don’t forget that one or more smaller awards add up.  Some of these come in the form of simple contests, so it’s surely worth a try.

There are in fact so many scholarship opportunities out there that the search is daunting for some.  Luckily, there are a number of convenient online one-stops out there to help your search, so check out Scholarship America, FinAid, and FastWeb.

Borrow Conservatively

Especially for young people who’ve never had to manage their own money before, student loans can be a dangerous thing.  Though lenders are not as willing to lend as they once were, it’s possible to borrow amounts that far exceed tuition alone, and inexperienced borrowers can falsely see those large quarterly disbursements as free money.  By all means, if you know you’ll be unable to work as you complete your degree, factor cost of living expenses into your borrowing.  However, because you’ll be paying interest over years, don’t be extravagant and only take out what you need for a comfortable existence.  

Consider Work Options

For some, college is seen as four years or more of dedicated study, free of the distractions of having a job.  While this sense of freedom is wonderful, don’t let it be at the expense of your future autonomy.  With some careful time management and a part time job, you can bring in enough income for cost-of-living expenses and lower your total loan.  In particular, see if you can find employment within the university you’re attending:  if you’re an out-of-state student,  this can sometimes make you eligible for wildly lower in-state tuition.

Look for Bargain Schools

Education should in the end be about getting skills and knowledge with which to prosper, not about prestige.  While it’s true that many “name brand” universities offer unparalleled networking perks, you can often find comparable professors and programs at state schools and lesser-known institutions.  Instead of going by a school’s overall reputation, check out the word on individual departments and placement rates within the degree you’re seeking. 

Similarly, if you’re pursuing a strictly career-focused technical degree, strongly consider bypassing university altogether and gain accreditation more cheaply - and even quickly - through an online school.  You can get certified as a pharmacy technician, for example, in only a year, while with the time you save commuting to classes can be spent working.

Finally, make sure to compare the total sum you expect to spend with what you can realistically expect to make upon entry into the job market.  If there is a gaping discrepancy, you may want to rethink your plans before you borrow.  Should you end up owing more than you would have liked, be absolutely sure to keep lines of communication open between you and your lender.  Student loan providers are more humane and flexible than any others, and there’s almost always a way to refinance or consolidate

Vera Reed is a freelance writer from Southern California. She is a former school teacher and loves writing about education and parenting issues. When she’s not writing, she loves spending time with her two young daughters.


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