college

7 surprising ways to minimize student debt

Highlights
  • Take time off between high school and college to consider your future career.
  • Don't quit school. Paying back student debt will be easier with a degree.
  • If you can, pay interest on unsubsidized debt while you're still in college.

Two out of three students attending four-year colleges rely on student loans, according to FinAid.org. While students normally may not think about the debt burden they'll face until after they finish school, they can minimize the financial strain by taking some smart steps well before their debts come due.

Take a gap year

"Sometimes it benefits students to wait until they have a better sense of why they want to go to college and what they want to study," says Michele Kosboth, director of student financial planning for Lasell College in Newton, Mass.

The benefit of finding the right school and creating a career plan before you get there is twofold, Kosboth says. Students who have a clear idea of what they want to major in and what classes will be required are more likely to graduate on time. Students who attend a college that fits their academic and social needs are also less likely to transfer and lose credits moving from one school to another.

Pick a major

"Changing majors even just once can add on a year of school," says Heather Doe, associate director of marketing and communications for the Iowa College Student Aid Commission in Des Moines.

When choosing a major and a college, Doe says students should make sure the amount of debt they'll take on isn't disproportionately larger than the average starting salary in that major. To keep lenders at bay, Doe suggests figuring out what your monthly student loan payments will be after graduation and ensuring they don't exceed 8 percent of the typical starting salary in your field of choice.

Stay in school

If you've already put in a few years at a four-year institution, it's smarter to stay in school and keep taking on debt rather than dropping out. A study by the U.S. Census Bureau shows that full-time workers holding bachelor's degrees earn an average of $15,400 more per year than full-time workers with some college, but no degree. For workers holding associate degrees, the gap narrows to $14,000 per year. In both cases, a degree means substantially higher earnings prospects and therefore a higher likelihood you won't default on student loans.

Investigate jobs

Federal Stafford loans give students a six-month grace period between graduation and the time when they must start paying back their loans, reports the Department of Education, while private loans may not have any grace period. The bad news in both cases is that students may not have a job when the bills come due.

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According to the Bureau of Labor Statistics, the average job search lasts more than nine months, meaning that you might get stuck with student loan debt you can't repay. Fortunately, students can take steps to reduce the job hunt time period and minimize the chance of defaulting on their loans.

"Many career placement offices offer free seminars for students on job searches and resume writing and job interviewing," says Pamela Rambo, founder of the education consulting firm, Rambo Research and Consulting, in Williamsburg, Va.

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