Millions of Americans are burdened by student loan debt. This national debt, which has ballooned to more than $1.6 trillion, is influencing life decisions such as the types of jobs people take and where they live. Bloomberg reports that around 45% of people between the ages of 18 and 29 live with their parents. That is the highest percentage since the 1940s. This debt is also influencing whether or not people even choose to enroll in college — the number of students enrolled in college now, versus before the COVID pandemic, has decreased by more than one million.
Still, a college education can open doors to opportunities that wouldn’t otherwise be possible. So even though student loan debt often takes years if not decades to pay off, people are still taking on the burden. In 2022, more than half of undergraduate students took out loans for school.
For students looking to enroll in college in the coming years, there are ways to minimize your debt as you begin planning your future. Here are some suggestions.
Start preparing early
First things first — if you’re planning to attend college or even considering it, begin preparing early. Talk to your parents to get an understanding of your family’s financial situation and find out information about the tuition costs of schools you have in mind, by using resources like the US Department of Education’s College Affordability and Transparency List. If you begin early, you also have the opportunity to be proactive and take steps in high school that will increase your options when it comes to college. From monitoring your GPA and signing up for extracurricular activities in preparation for specific scholarship applications to testing out of classes so you may not have to take them in college, getting a head start will help maximize your efforts of obtaining financial aid and will make your senior year less stressful.
Make sure you file and understand the FAFSA
Students who are US citizens or permanent residents should complete the Free Application for Federal Student Aid (FAFSA) form. It’s free to submit and the first step in applying for student aid — federally, and in many cases, on the state level as well. This includes loans, work-study funds, and free aid such as federal grants. Around 1.7 million high school graduates didn’t file the FAFSA in the 2020-21 school year — missing out on billions of dollars in financial aid, according to a New York Times report.
Another thing to keep in mind is that simply filling out the FAFSA isn’t good enough. “There are strategies to understand how the aid process works, and how to maximize the aid,” said Kalman Chany, a financial aid consultant and author of The Princeton Review’s Paying for College. “The amount of aid you are eligible to receive is based on how you plan in advance and how you complete the applications. There are ways you can answer questions that can influence how much you get.”
Consider staying in-state
Choosing to stay in-state for college could save you a lot of money. “If you're looking at attending a school out-of-state, public universities are going to be incredibly expensive. This is because you’re charged extra because you're not from in-state and you're not generally eligible for state aid,” explained Chany. “Some state aid is possible, but oftentimes if it is, it's less than the amount you might have gotten if you were staying in-state.”
Factor in the cost of public state schools vs. private schools
The school name on your diploma isn’t nearly as important as the fact that you are earning a diploma. Public state schools cost about 25% less than private nonprofit schools, so one of the most effective ways to reduce college debt is to opt for public state schools rather than an expensive private institution. Although big-name private schools have prestige, four-year state schools can lead you to the same career and earnings.
That isn’t to say students should immediately rule out a school because they assume that it’s too expensive. “On some occasions, private schools — especially for those that demonstrate a need for aid — cover more, financially, than public institutions,” said Chany. For example, in 2023, Princeton University began offering a new financial aid package in which students whose families earn less than $100,000 a year do not have to pay tuition or room and board and will be given $4,050 each school year for books and personal expenses.
Transferring from community college is an option
Students who are unsure of their career path or looking to have lower financial obligations than they would by attending a four-year institution might want to consider starting their higher education journey at a community college. Community colleges are often much more affordable than universities — about one-third the amount of in-state tuition at four-year public universities.
After completing basic coursework, students can transfer to a four-year school to complete their degree, saving a significant amount in tuition costs. According to the Education Commission of the States, at least 31 states have automatic transfer programs from community colleges to four-year state schools, with a guarantee of an associate’s degree. Attending community college could give you the opportunity to spend much less on tuition and save money on room and board.
Try to take out federal loans over private loans
Interest is money paid to a lender in addition to the amount that was loaned. When seeking financial aid, it’s important to be mindful of interest rates because the total amount of money owed will include the interest accrued.
Interest rates for federal loans vary, depending on the date they’re first disbursed and the type of loan, but the rates are fixed, meaning they won’t change for the duration of the loan. Unlike federal student loans, the interest on private loans can vary between lenders and takes factors, such as your credit score, into consideration when determining your rate. Additionally, the rates for private loans, which are issued by banks and credit unions, might be fixed or variable. If variable, the interest rate might fluctuate in response to changing market conditions, so payment amounts could rise or fall during the life of the loan.
To sum it up, federal loans typically come with lower interest rates, flexible repayment options, and various forgiveness programs, making them a safer choice for managing your debt after graduation.
Look into scholarship options
“I'm always wary of talking too much about scholarships,” Michele Shepard, senior director of college affordability at The Institute for College Access & Success, a nonprofit that advocates for equitable and affordable higher education, told Teen Vogue. “Scholarships are amazing. They're free money, so I am very much in favor of students receiving them. At the same time, it's so messed up that that's even the situation we're in, from a policy standpoint. That we're putting it on the student to ‘dial for dollars,’ basically, to cover their education. But things being as they are, that is definitely another important piece for attending college with the least amount of debt — looking at all scholarship options available.”
As mentioned by Shepard, unlike loans, scholarships do not need to be repaid, making them an ideal option for students seeking financial aid. Scholarships come from various sources, including employers, private companies, nonprofit organizations, and community groups. Schools also offer scholarships and the first step in potentially securing a school scholarship is filing the FAFSA.
Some scholarships are merit-based and awarded to students who meet specific academic or extracurricular standards set by the scholarship provider. Others are granted based on financial need, offering assistance to students who demonstrate a lack of financial resources. Additionally, scholarships are often tailored to specific groups, such as women, graduate students, or individuals from certain backgrounds, including military families.
Searching early and applying to as many as possible will maximize the chances of receiving this type of financial assistance. Be sure to avoid scams: Legitimate scholarships do not require payment for application or processing fees.
See if you're eligible for grants
“The Pell Grant program is kind of the foundational piece of the Federal Financial Aid System. It is grant aid that doesn't have to be repaid, basically free money, that goes directly to cover college costs. It's super well-targeted and has a lot of bipartisan support,” explained Shepard. “On the federal level, it's the most flexible, the most student-centered program. It can be used not just for tuition costs and fees; it can also be used for living expenses and housing.”
Whether or not a student is awarded a Pell Grant and the amount they receive depends on financial need, the costs to attend school, their status as a full-time or part-time student, and how long the student plans to attend school during the year. For the 2023-2024 school year, the maximum amount of a Pell Grant was $7,395. “The purchasing power of the current award is way too low. It's much lower than it used to be,” said Shepard. “In the '70s, it covered 80% of a four-year public cost, and now it covers less than 30%. It's just not enough. It hasn’t kept pace with the increase in college costs and hasn't even kept pace with inflation.”
In 2020, more than six million undergraduate students received a Pell Grant. Still, many students are missing out on this money by failing to file a FAFSA. Of the 1.7 million high school students who didn’t file the FAFSA in the 2020-2021 school year, 813,000 qualified for Pell Grants, with the average grant being around $4,500. Around $3.75 billion in Pell Grants were left unclaimed by those class of 2021 students who didn’t file the FAFSA.
Participate in campus work programs
Consider participating in work-study programs offered by your college. These programs allow you to work part-time on campus or with approved off-campus employers and earn money to cover your educational expenses. This can help reduce the amount you need to borrow. Additionally, many schools hire students as resident advisors, often with free room and board and perks like free meal credits, eliminating a huge portion of living expenses.
According to the College Board, 54% of students who graduated with bachelor’s degrees in the 2020-2021 school year, had average student loan debt of $29,100. Regardless of the amount of loans you choose to take out, understanding the numbers will be beneficial in planning and making the best choices.
“Research what you want to do when you get out of school, what the entry-level pay is, and be realistic about that because some surveys show students are overly optimistic about what they're going to make,” said Chany. “Know what that is and plan to have debt, including any accrued interest, that is less than the annual salary.”
Taking on student loan debt can be overwhelming, but being strategic and making informed decisions can help you graduate with the smallest amount of debt possible.
Illustrations by Sarah Mazetti
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