We all know college costs are expensive and many people find themselves taking out student loans to help pay their tuition. There have been many articles in the news recently about the amount of student loan debt being carried by graduates today. These articles do not tell you that the debt does not have to be as high as it is for many graduates.
With many colleges heading back into session, whether in person, online, or a mix of both, tuition is due. Look at your tuition bill. Does it have any new charges on it? We recently learned of one student who now has a distance learning fee on his bill. Are you still being charged room & board but cannot live on campus? You should be reading your bill every semester and if there are charges you do not know what they are for, ask someone. Many times, there are charges on bills that are in error. Getting erroneous charges removed saves money.
Check out the school you are attending, are there any additional scholarships that you could apply for? Even if the amount of the scholarship award will not cover your entire tuition, it can be worth taking the time to apply. What if the scholarship is for $500.00 and you have to write a 5-page essay? The time it takes to write the essay costs you far less than the extra $500.00 in student loan balance at a 5-6.5% interest rate. When you graduate and begin working, how many hours will you have to work to pay off that $500.00 with added interest? For example, you have finished your degree and are lucky enough to find work in your field. The going rate is $40.00 per hour for someone just starting in your career. Without any interest added to the $500.00, you would have to work 12.5 hours to pay off the $500.00. How long would it take to write a 5-page essay? Would you rather be working the same 12.5 hours for living expenses or toward a vacation instead of student loans?
Another way to keep your tuition costs down is to take your prerequisite courses at your local college versus a 4-year college. These credits transfer to 4-year colleges and the tuition costs at your local community college can be half of what they are per semester at a 4-year college. Why spend twice the money to take a class that is the same class and credits at your local community college? When you graduate from the 4-year school of your choice, your degree will have the school’s name on it. It will not say you completed your prerequisite courses at a community college. You will still have the prestige of the 4-year school’s name on your degree. Especially true right now with many being home because of COVID.
The same is true if attending a college near your home, why live on campus? We often hear, “I want the total college experience.” For one semester at a state four-year school, room and board are around $9,000. If you live within 1 hour of the school, you are attending, living at home, and the additional gas money to and from school is still cheaper than $9,000 for one semester of room and board. Again, when you begin working, how many hours will you have to work to pay the $9,000 and the interest on the loan so you could “Have the total college experience”?
If you choose to live at home while attending school, do not take living expenses as part of your student loans. Your parents typically cover your room and board expenses at home. If you are living at home what do you need living expense money for? You could get a part-time job to have money to spend on entertainment, trips, etc. versus taking out this additional money at 5-6%. When you begin working, how many hours are you going to have to work to pay this money back? Will this mean your student loan payments are so high when you graduate that you will have to continue to live with your parents because you cannot afford to make your student loan payments and the expense of living on your own? Currently, 28% of recent college graduates live with their parents due to student loan debt.
Federal student loan payments are suspended due to the COVID-19 epidemic, private student loans were not granted this suspension. You are not required to make your payments. It does not mean you should not make your payments if you are fortunate enough to be working. Right now, the interest on federal student loans is set to 0% through December 31, 2020, which means every payment you make is paying down the principal on your loan. When the suspension is lifted, and student loan payments begin, having a smaller principal balance means you pay less in interest on the life of your loan. We hear all the time, “what is the monthly payment and for what period of time?” because this is what fits into people’s lives. People may not understand that the overall difference in larger payments for shorter periods of time saves you interest.
For example, Sam has graduated and found his dream job, which pays an annual starting salary of $45,000 per year. Sam has total outstanding student loans totaling $50,000 at a 6% interest rate. When setting up his student loan payments, Sam has chosen to pay the loans over 20 years because he can afford the monthly payment of $358.22. When Sam has paid off his $50,000 loan in 20 years, he will also have paid $35,971.73 in interest. His degree now cost him $85,971.73. If Sam chose to do a 10-year term with monthly payments of $555.10, he would reduce the amount of interest paid down to $16,612.30. If Sam chose to tighten up his finances for five years with a monthly payment of $966.64, he would only pay $7,998.40 in interest on his student loans.
These are just a few ways you can lower the amount of student loan debt you come out of school with. Taking the time to look for different grants, scholarships, and work-study programs can save on your tuition bills and student loan balances. These can give you more choices and freedom when you graduate and begin working, keeping more of your wages in your pocket instead of paying down the large debts incurred while getting your degree. A little time and planning can save you significant dollars today and in the future.
Stay tuned for the next post as we will be discussing the different types of loans that can be taken to help pay tuition!