Decreasing Student Loan Debt While In School
Funding a college education has gotten increasingly more complicated over the years. Students and their families often have to account for multiple funding mechanisms - payment plans, savings like 529 Plans, gift aid like scholarships or waivers, and self-help aid like federal work study or student loans.
Loans can provide access to a college education for people that have historically been unable to afford it. However, they are a long-term commitment that is often difficult to plan for and manage. There are a few things you can do while in school to decrease your need for student loans.
Work While in School
If you are able to work while in school, it can help you manage your expenses without taking on more debt.
Research is mixed on many impacts of working while in school but a study published in December 2019 has shown students who work while in school have higher post college earnings compared to those who do not work while in school.
Time management is an important skill to have when balancing work and academics. If you find that the number of hours you work are impacting your academic performance, you will need to either modify the amount of credit hours you are taking or your work commitments so your academic performance or persistence towards your degree does not suffer.
Apply for Scholarships and Fellowships
Applying for scholarships and/or fellowships throughout the year can reduce the need to borrow loans in a future academic year.
We have several resources for learning how to apply for scholarships and fellowships. The important thing to remember is that scholarships and fellowships take a lot of time to receive, and applying doesn't guarantee an award. Some of these educational resources include:
We also are working on updating our content on the Taxability of Graduate Level Tuition & Service Fee Waivers.
If Feasible, Use a Payment Plan
If it is feasible with your or your family's budget, a payment plan can be helpful in stretching tuition payment over the course of the semester rather than paying all at once.
Establish and Maintain Good Credit
It is also crucial for you to establish and maintain good credit as it influences your ability to obtain private or even Grad PLUS loans in the future which can impact degree completion.
Consider Paying Interest as it Accrues
You can consider paying interest on student loans as it accrues while in school to reduce the overall costs of student loans. This depends on the cost and nature of the degree program, as well as the type of student loans you take out.
Example 1: $20,000 Principal
For example, if you took out a $20,000 unsubsidized student loan at 5% interest, paying the interest as it accrues before it is capitalized (or added to the principal balance of the loan), could save you $5,707.72 over the life of the loan. That would amount to $47.73 every month once your loan is in repayment.
Example 2: $100,000 Principal
However, let's say you're in a higher cost, more intensive degree program, like dentistry or medicine, where it could be extremely difficult to earn extra income to make interest-only payments while in school. It is less costly to try to reduce the amount you borrow initially, if you're able, than to attempt to make interest-only payments while in school.
This example uses interest rates of 6.8% which was the interest rate for federal student loans for graduate students in January 2020.
Since there are so many things to compare, let's look at this information in a table:
| Paid Interest in School | Did Not Pay in School | Reduced Borrowing + Did Not Pay in School |
|---|
| Principal | $100,000 | $100,000 | $93,200 |
| Interest Accrual in Standard Repayment | $38,096 | $47,487 | $44,258 |
| Interest Accrual (1 year) | $6,800 | $6,800 | $6,338 |
| Total Cost | $138,096 | $147,487 | $137,458 |
In this scenario, if you chose to pay interest while you're in school, your interest-only payment would be over $560 per month.
However, reducing initial borrowing by $6,800 and not paying interest as it accrues saves $10,000 total over the life of your loan if using the standard 10 year repayment plan.
Cancel Loans You Don't Need
You can cancel part of your student loans if you don't use it in the semester it is received. This reduces the origination fees you pay in addition to lowering your principal balance.
Learn More About Student Loans
You can learn more about student loans with:
Or, you can enroll in our Borrow course by following the steps below:
- Visit the Borrow course.
- Click the NetID Login button.
- Log in with your NetID & password (requires 2FA).
- Under Self-enrollment (Student), click the "Enroll Me" button.
- Complete the modules that interest you related to borrowing and managing debt.
