Josh Elledge - Chief Executive Angel
How to avoid student loans or reduce student loan debt
When I say “student”, do you say “loans”? Well, maybe for sure now, because of the title of this article. But would you have said that anyway? Many people would, or at minimum have an instant association between students and money, such as “broke” or “poor”, especially if you add the word “college” to the mix. This is the sad truth of the modern pursuit of higher education – it has becoming nearly synonymous with debt.
Are there ways to avoid taking on student loan debt? Absolutely. Here are some tried and true methods:
#1 – Let honesty analyze the student, not emotion. It's too easy to look at a high school grad and automatically figure they are headed to college. It's ingrained in our society. But that may not be the best course of action for all students. Don't just start looking at colleges and trying to line up financial aid. Instead, step back and evaluate the potential student objectively. Ask yourself these questions:
– Are they really ready for college? Age does not automatically translate into being ready for college life. Neither does the desire of the parent, or even the student themselves. Some young people simply become overwhelmed, and end up retaining little of what they learned their first year or two of college. Some end up having to transfer, and find that the credits they earned don't transfer well, resulting in both lost time and wasted money – a lot of it. Some even end up quitting college altogether, and don't have a diploma to show for all that money now owed.
– Do they have concrete goals and aspirations? Do they know what they want to be when they grow up? Too many students head off to college because that's what is expected of them. But they really have no idea what they want to do with their lives. So the result is trying this class and that class, heading into a field, only to change focuses midway, sometimes multiple times… The problem with this is that credits for courses previously studied do not always assist with the requirements of a new focus or major, resulting in actually needing more classes. Which means more debt.
– Are they dedicated to obtaining an education – or are they looking to just have the “college experience”? If a student is more focused on the freedom and possibilities of life on their own than they are about the field they'll be studying, that's a red flag.
The upshot is this: Avoid student loan debt by honestly analyzing whether or not going to college is the right thing. I'm not saying they should never go, but I am saying maybe they shouldn't right away. Taking a year, or even two, to work and determine where their life passions lie is a very wise financial choice. Plus, money can be saved for classes, so that finances are there when the time is right.
#2 – Go local first. Even if a student is ready, and knows what they want to do, going local the first year for basic classes is still advisable. Credits from an accredited community college usually transfer well, but are much less expensive, and still living at home saves thousands. Particularly for general education classes, this plan earns my SavingsAngel ‘Best Buy’ strategy.
#3 – Hold a light schedule and work, work, work. The “worked my way through college” method is definitely difficult, but extraordinarily rewarding. Arranging a manageable class schedule, while working full time will take longer to graduate, but needs can be paid as they arise – avoiding debt. The absolute best part is likely the work experience gained if a job can be found around their field of study. Students who are dedicated enough to do this can show potential employers both a diploma and years of experience – squarely placing their resume on the top of the heap.
But what if you already have student loan debt? You may be reading this, and think…
“Yep. Great advice. If I didn't already have student loan debt. I've had mine so long, I call her by name. Meet Sallie. She's practically part of the family. She gets a monthly stipend and a comfy place in the filing cabinet. I'm hoping she'll move out sometime around 2023, but it's not looking so hot.”
Student Loan refinancing has evolved over the past several years and players in the space have been coming from places like Silicon Valley. Having recently raised more than a billion dollars in financing, SoFi.com (short for Social Finance) has made waves within the personal finance industry and touted their prowess in a Superbowl ad on Sunday. The Dave Ramsey crowd will likely cheer SoFi’s recent decision to abandon an applicant’s FICO score when determining student loan refinancing qualification. Instead, they factor employment history, your track record of meeting financial obligations, and monthly cash flow minus expenses.
Why might a student loan refinance be a smart move? The average student loan interest rate has been at around 7.9% over the past several years. Refinance rates can reach as low as a 3.5% fixed rate – and even lower when choosing variable interest. There are some government protections one would give up when choosing a private refinance. However, the savings of thousands or even tens of thousands over the life of the loan repayment will likely make this a smart financial move.
