9 ways to reduce student loan debt before you owe

It’s late May, and a new crop of students is preparing to go on to college. One of my less pleasant memories was the agonizing process of securing financing so I could pursue my degree. Though it’s many years later, I’d like to share what I learned that can make paying student loans more manageable and less onerous.

The interest rates were actually fairly similar to today’s; but I attended college back when mortgage rates were around 15 percent, so low, single-digit student loan rates represented much more of a discount.Of course, it was much easier when I went to college than it is now. Even adjusted for inflation, college education was much less expensive then and student loans were a better deal.

Because student loan debt was less burdensome when I graduated, despite the fact that I took on the debt in a desperate and disorganized way, I was able to pay my loans off early, within five years. These days, the financial stakes are higher, and it takes more planning to make student loan debt manageable.

How to reduce student loan debt

Here are some things students and their parents should consider to reduce student loan debt in the first place:

1. Consider value for your education dollar. Education is a wildly inefficient market. By that, I don’t mean that the schools themselves are disorganized. What I mean is that if you think of education as a consumer market with heavy competition for student dollars, it is amazing how wide the cost differences are. Even if you excuse the cost of elite colleges as the price you have to pay for a premium product, looking at more run-of-the-mill colleges one finds huge cost differences — sometimes representing tens of thousands of dollars a year — which do not seem generally to correlate with differences in quality. The nice thing about inefficient markets is that they make bargains available, but only to discerning consumers who take the time to shop around. Cheap should not be your primary criterion for choosing a school, but value for money should be high up on your list.
2. Understand the qualifications needed for what you plan to do. One reason it is not out of place to think of education as a consumer market is that there is so much hard selling of degree programs these days. Often times, colleges heavily advertise degree programs that relate to a trendy career choice, but those degrees do not represent the full qualifications necessary to compete in that field. Don’t just choose a degree program because it sounds like something you’d like to study; think ahead to what you would like to do for a living, and then work backward to identify the degrees necessary to get hired in that field.
3. Know what the market is for your planned career. Speaking of thinking ahead, research what demand there is for your planned career. The Bureau of Labor Statistics is a good source for information on hiring trends by occupation. I’m not saying you can’t choose more of a niche field because it is something you love, but you should know what your odds of making a living in that field are before you spend time and money preparing for it.
4. Explore all your financial aid options. The federal government has a program called Free Application for Federal Student Aid, or FAFSA. This is a good clearing house for information and application materials for several types of student financial aid, so you can find the resources you need and choose the best ones for your situation.
5. Prioritize your financial aid types. If there are grants or scholarships available — sources of aid that don’t require repayment — make the most of those before you borrow money. Then, choose federally-backed student loans first, because these offer good loan terms and some repayment flexibility. Private student loans should be your last priority.
6. Use savings resources wisely. If you have saved money for college, put it in vehicles that will make it available when you need it and yet earn you the most interest in the meantime. You’ll find that if you are able to plan six months or more ahead, you can find CD rates that will do better for you than what you could earn in a savings account.
7. Check how your repayment schedules add up before you borrow. Every loan you sign up for will probably provide a repayment schedule, but the reality check is to see how those repayment schedules add up as you take on multiple loans. Graduating students are often shocked by the burden they are facing, but there is no excuse for taking on obligations you won’t be able to meet.
8. This time is too expensive to waste. Don’t be intimidated by the financial responsibility facing you, but respect it and use it for motivation. Blowing off classes and prolonging your time in school is an awfully expensive luxury. Getting your degree on time can save you a great deal of money.
9. Remember the bigger picture cost of failing to pay. There is a lot of resentment among recent graduates about the financial burden they’ve taken on with student loans, and this is often expressed as talk about not paying back those loans — either by taking advantage of government forgiveness programs, lobbying for student loan relief, or simply defaulting. Just remember that every student who fails to pay back a loan makes it harder for subsequent students to get those loans. If you approach taking on and paying back loans responsibly, you can make the system work for you and future generations of students.

When you think about it, financing college represents a sort of hand-off of responsibility from the parent’s generation to the student’s. The parent often helps pay for college and guides the student in finding and organizing financing. In the long run though, it is the student left making the student loan payments for years to come — often until he or she has kids and has to start thinking for their college education.

That passing down of financial responsibilities between generations makes this an ideal time to work together to find and plan educational financing, so the older generation can share what they’ve learned and the younger generation can step up and make informed decisions about the process rather than just going along for the ride. Given the nature of the challenge involved, both an older person’s knowledge and a younger person’s eye to the future can bring valuable perspective to the process.