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How to Graduate College Debt-Free (Or Nearly So)

| Money Rates Columnist.
min read

college-debtThe class of 2018 graduated with an average college debt of $29,200 each, according to The Institute for College Access and Success. But you don't have to be average. With the right planning, you can graduate from college debt-free, or nearly so.

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Why you MUST care about college debt

In November 2019, The Pew Charitable Trusts published a review of the state of student loans. One fifth of those with government-backed student loans are currently in default.

  • Student loan defaults are serious offenses that wreck your credit when you're trying to start your adult life and build a career.
  • Government-backed student loans do not go away. They continue to harm your credit and your career prospects.
  • Government-backed student loans are nearly impossible to discharge in bankruptcy.

That's why you must do everything possible to minimize your college debt load. And make sure you'll be able to repay your loans before you take them on.

First Things First: What's a Degree Worth?

Not all colleges are created equal, and not all degrees offer the same return on investment. Unless you're independently wealthy, you must consider this before incurring the cost of an education. Here are questions to ask before embarking on your college experience:

  • What am I training to do?
  • How likely am I to get a job in that field after graduation?
  • What does that career pay? Is the field growing or declining?
  • What will my education cost at my chosen institution?
  • How good is that school's reputation, what are its graduation rates and employment statistics?

A great source of employment and career data is the US Department of Labor Statistics. You can look up almost any career and see what it pays and the education level you'll need. You can use a loan calculator and see what your student loan payments would be for five or ten years - and decide if you can afford them at your expected income.

Student Loans: How Much Student Debt Is Too Much?

College borrowing experts recommend keeping your total debt at graduation below your annual income after graduation. That produces a monthly student loan payment of about 10% of your gross monthly income.

Anything more can cripple you financially. Consider that mortgage lenders don't want to see you spending more than 43% of your gross monthly income for all of your accounts, including auto loans, housing, credit cards and student loans. If your student debt service exceeds 10% of your before-tax income, you won't be able to afford a house. Maybe not even a car.

So keep your borrowing low and/or your income potential high.

The best and worst college degrees for repaying student loans are listed below.

Related: What Happens if You Don't Pay Your Student Loan?

7 Best College Degrees for Repaying Student Debt

The US Bureau of Labor Statistics projected which fields will have the most openings for bachelor-level degrees in the next few years. But not all of those, even though they require four-year degrees, pay well. Here are the careers in the high-demand fields that also generate more income for student loan repayment:

  • Business (market research analysts, human resources specialists, compliance officers, cost estimators and logisticians)
  • Engineering (civil, mechanical, industrial and electrical)
  • Architecture (all except naval and landscaping)
  • Financial (accounting and auditing, securities and loan sales, and analysts)
  • Healthcare and science (registered nurses, technical salespeople, and environmental scientists)
  • Information technology (software developers, systems analysts, and network administrators)
  • Management (general and financial)

7 Worst College Degrees for Repaying Student Debt

Kiplinger created a list of the college degrees with the worst career and earnings prospects. Here are the top seven:

  • Art history
  • Art
  • Theater
  • Graphic design
  • Culinary arts
  • Radio and television
  • Photography

If these occupations are your passion, you needn't forgo them. But understand that these professions have not just modest earnings - there are also relatively few openings. If you borrow to earn a degree in a field with few jobs, don't borrow more than your annual salary for a job you know you can get, or the one you have now. If there's a chance you'll be driving for Uber after graduation, borrow conservatively.

Related: When Student Loans Become Your Midlife Crisis

How to Reduce College Debt

OK. Now you're scared about college debt. Let's move on to ways in which you can moderate or eliminate yours. They include:

  • Advanced Placement®
  • Community college
  • State college or university (your own state)
  • Scholarships
  • No-loan or low-loan colleges
  • Live at home
  • Live frugally
  • Borrow smart
  • Work

If, up until now, you've shrugged and assumed that leaving college with at least $30,000 of debt is unavoidable, some of these ideas must come as a revelation. But such burdens are anything but inevitable.

Advanced Placement

AP is a program of courses and exams offered by many high schools. What's special about those is that they're taught at a similar level to introductory college courses. And they can provide you with college credits before you so much as set foot on a college campus. Public high schools don't charge tuition, so you may get college credits for free.

There are more than just financial benefits, according to the Princeton Review:

  • Get used to a more challenging learning environment.
  • College admissions officers often favor applications that show AP participation.
  • High schools love AP when they're calculating your GPA. The Review reckons many count an AP "B" grade as superior to another course's "A" grade.
  • With a wide range of courses on offer, there's a good chance you'll be able to shine in your favorite subjects.

Of course, not all high schools deliver AP courses. If yours currently doesn't, ask your favorite teacher what the chances are of it beginning a program. Neither tears nor hysterical laughter can be regarded as a good sign.

Related: 8 Ways to Get Rid of Student Debt

Community College

Community colleges have a reputation for being deeply unglamorous. But they deliver great value. And if you transfer your credits to a four-year school, that's the institution you'll see on your degree.

Are you majoring in math? It doesn't matter if you're not, because the figures here are so stark that they're obvious to everyone. The College Board's Trends in College Pricing 2019 report reveals average published (note that word) tuition fees for different types of college nationwide in 2019-20:

  • In-state public four-year college - Total tuition and fee and room and board charges: $21,950
  • Out-of-state public four-year college - Total tuition and fee and room and board charges: $38,330
  • Public two-year college (community college) - in-district tuition and fees: $3,730 (no room and board option)
  • Public four-year college - (excluding room and board): $10,440
  • Private nonprofit four-year college - Total tuition and fees: $36,880. Average total charges: $49,870

Of course, those are averages, and they disguise wide variations. But the message is clear: if you continue to live at home and get your first two years of higher education at your local community college, you could easily slash a five-figure sum from your ultimate college debt.

Free College in 11 States

Remember we asked you to note the word "published?" That's because the tuition and fee rates a college publishes can be very different from what you actually pay -- and in a good way.

So, once you consider scholarships, grants and tax benefits, even that $3,730 your community college may be advertising can turn out to be a lot less. Indeed, the College Board says, "56% of independent students and 50% of dependent students at public two-year colleges did not pay any part of their tuition and fees."

In 11 states, paying nothing for a two-year course at community college is already commonplace. In March 2019, Arkansas, Delaware, Indiana, Kentucky, Maryland, Nevada, New Jersey, New York, Oregon, Rhode Island and Tennessee were all operating "last dollar" scholarship programs. And another nine states were developing similar initiatives, including California.

These programs typically top up any scholarships and financial aid for which you're eligible to that last dollar. In other words, in these states, you should be able to get every cent of your tuition and fee covered by one source or another.

And that benefit isn't restricted just to community colleges. If you want to study an eligible vocational course or for an associate degree at another type of institution that participates in the program, you may well be in line for a "last dollar" scholarship.

Inevitably, all such programs come with terms and conditions. So you need to make sure you understand the ones that might apply to you. Residency and a place offer are near-universal. But some require a high school diploma or a minimum GPA.

Related: Pay Down Student Loans or Save for Retirement?

State 4-Year Colleges

State colleges and state universities are supported financially by state governments. And they have a solid reputation for cost-effectiveness. In other words, you tend to get a lot of educational bang for your buck.

Still, you have to bear two things in mind:

  1. There are huge variations in costs, the quality of teaching and the prestige of the degree that you earn between different state universities and colleges. Some deserve that reputation for cost-effectiveness more than others.
  2. Research from Georgetown University published in 2019 suggests that public colleges such as these tend to deliver a bigger bang per buck than others offering bachelor's degrees over 10 years. But private nonprofit ones do better over 40 years.

To be fair, that Georgetown study acknowledges the difficulties of making such calculations. And its title, A First Try at ROI (return on investment), suggests it's still refining its methodology. But with those caveats in mind, you can look up 4,500 colleges on the university's website to see what it makes of your choices.

State College Costs

That College Board report on college pricing in 2019 goes into some detail over the published tuition and fee rates of state colleges nationwide. And it also shows the differences between rates charged to in-state and out-of-state students. The figures shown are for each state's "flagship" (presumably meaning largest or most prestigious) university or college.

The two most affordable for in-state learning are Wyoming ($5,580) and Florida ($6,380). But the story's different for out-of-state students. Their lowest cost options are South Dakota ($12,810) and North Dakota ($13,840).

The most expensive state colleges for in-state students were Vermont ($18,800) and New Hampshire ($18,880). And the costliest for out-of-state ones were Michigan ($51,200) and Virginia ($49,970).

Scholarships (Not Just for Nerds)

Undergraduates received $186.9 billion in student aid in 2018-19, according to College Board estimates. Of that, $41.3 billion came from the federal government in the form of Pell Grants ($28.2 billion), grants for veterans ($12.4 billion) and smaller programs. Other major sources of funds included state grants ($12.6 billion), institutional grants ($64.7 billion) and private and employer grants ($17 billion).

That last paragraph was just a way of telling you there's an awful lot of money sloshing around the system. And you need to make sure you get your hands on every cent you can.

Scholarships come in some pretty crazy colors, as a 2018 US News story showed.

  • Academic achievement
  • Community service
  • Athletic achievement
  • Underrepresented groups and minorities
  • Being poor (ish)
  • Your (or your parents') employer

And then there are miscellaneous opportunities. Are you a redhead? Check out ScholarshipRed. Do you have an unusual hobby? You can get a grant for your duck-calling abilities. And Duck Tape (a brand of duct tape) offers scholarships to those who make the best prom outfits using its product.

Student loan lender Sallie Mae advises, "There are different types of scholarships out there for almost every hobby, skill, or interest. Think about your strengths and things you love to do -- then search for scholarships based on those."

No-Loan or Low-Loan Colleges

We've already mentioned that 20% of Harvard undergraduates pay nothing to attend the college. And most schools (including the others in the Ivy League) provide opportunities for good students whose financial circumstances would otherwise prevent them from reaching their full potential.

So which do that so routinely that we can count them as a no-loan or low-loan college? The Affordable Schools website lists some:

  • Alice Lloyd College - Christian liberal arts college. You may have to work on campus for maximum benefits. But "the out-of-pocket cost of tuition is $0 for students originating from our service area."
  • Barclay College - Quaker school that accepts students from all evangelical faiths and teaches with "a solid biblical foundation."
  • Berea College - Liberal arts. If you're admitted, you won't pay tuition
  • College of the Ozarks - Christian. "No tuition is charged, all students work on campus, debt is openly discouraged, and no federal, state or private loans are made."
  • Curtis Institute of Music - All music, it "provides merit-based, full-tuition scholarships to all undergraduate and graduate students, regardless of their financial situation."
  • Deep Springs College -- A two-year college, but around half of its students go on to acquire doctorates. Admits 12 to 15 students each year on full scholarship. In exchange, Deep Springs students are expected to dedicate themselves to lives of service to humanity"
  • Macaulay Honors College at City University of New York (CUNY) -- With 475 majors, Macaulay "offers all of its students a merit scholarship package that includes tuition." And 87% graduate debt-free.
  • Webb Institute -- Specialist engineering school for those interested in naval architecture and marine engineering. " ... provides all enrolled students full-tuition scholarships to U.S. citizens and permanent residents, valued at $51,240 for the 2019-2020 academic year"
  • Williamson Free School of Mechanical Trades -- Associate degrees in six mechanical trades. All students get a tuition scholarship, though you may need $5,140 (in 2019-20) for room and board and annual fees

Don't see this list as exhaustive. Hunt around for other colleges that could help you graduate debt-free.

Live at Home

This may be the toughest decision you make in your quest to eliminate or minimize your student loans. Because living at home through college involves a real sacrifice on your (and your parents'!) part.

But let's start with some circumstances where doing so could be a mistake:

  • You don't have a private space where you can study undisturbed.
  • The members of your family are at war (or your siblings run wild) and the environment is disruptive and distracting.
  • Commuting costs a big chunk of the savings.
  • The hours you spend commuting will eat too far into your study time.
  • Your broadband or fiber is too slow to let you study remotely.
  • You're expected to do so many chores to pay your way that you can't get on with your work.

Your goal must be to graduate with a great degree. If living at home is going to stop you from doing that, it's a false economy. You'd be better off living with more college debt.

What You Could Save

Certainly, living at home could make a huge dent in your final college debt. Most colleges publish their expected room and board costs. And you should check what yours charges.

But expect roughly $11,000 for a year's accommodation and food. And possibly much more at some colleges or if you want a private room rather than one you share.

For example, the website of the University of California at Berkeley advertises room and board of $17,220 for 2019-20. And $20,506, if you opt to live in Bowles Hall.

You may decide that those sorts of figures make the sacrifices of living at home worthwhile.

10 Tips for Student Savings

You can save a small fortune by learning to live frugally. And that's a habit that could benefit you for the rest of your life. So here are 10 tips:

  1. Sell your car - Unless you need it often, it's likely to be a money pit, eating into your budget with gas, maintenance, insurance, tire, parking and other costs.
  2. Learn to cook - Eating out can be expensive. Save by cooking your own meals. And buy discounted ingredients and near-their-use-by-date bargains.
  3. Use your student discounts - You're in line for a pile of these from fashion and technology brands as well as local restaurants and transportation.
  4. Banking discounts - Student accounts are free.
  5. Cut school costs - Buy used textbooks or even share with friends.
  6. Use your campus - Lots of amenities and events there are free.
  7. Avoid credit cards -- Unless you have iron self-disciple and can be sure you'll zero your balance every month.
  8. Use apps - monitor your bank accounts and manage your cell usage.
  9. Get a roommate if you live off-campus.
  10. Graduate on time. Every semester burns money.

That last one's typically the most important. Get that wrong, and you'll likely have wasted all the effort you put into scrimping, economizing and budgeting.

Get a Job

One way to minimize student loans and college debt is to work your way through. Even just a few hours a week could knock thousands off your final bill.

If you're a good student, tutoring might provide flexible income. It can also increase your understanding of the subject matter, because you really have to know it to teach it.

And paid internships can offer experience in your field and increase your employability after graduation. Giving you a head start on repaying any balances you do have.

You can find opportunities at your college career office, hit the usual online job sites, or leverage your contacts. And any professors who like you and are in a position to provide a recommendation.

Borrow Smart

It's hard to graduate with zero college debt. And many will settle for entering the workplace with loans that are a fraction of the average.

But don't stop there. Because how you borrow can make a big difference to what you end up paying.

We already covered, near the top, some of the principal differences between federal and private student loans. But is there a role for other types of borrowing? Well, maybe -- sometimes.

Related: Personal Loan or Private Student Loan?

Private Student Loan Pros and Cons

Those figures relate only to federal college debt. Plenty more is owed by former students to banks and other lenders in the private sector.

Like most things in life, private student loans come with pros and cons:

  • Pro - They often come with lower interest rates than federal ones.
  • Con - They have fewer protections if you can't afford to make payments. And income-driven programs are rare.
  • Pro - You can use private loans to top up your federal borrowing.
  • Con - You'll have to manage multiple loans.
  • Pro - You could get a sweet rate if you have a great credit score (or if you get someone with a great score to co-sign as your guarantor).
  • Con - You could pay a high rate if you or your co-signer's score is less than good.
  • Pro - you can discharge private loans in bankruptcy.
  • Interest rates are usually variable, which can make budgeting difficult.

You might see a pattern here. These are typically a better choice for those who have (or whose families have) plenty of resources or near-certain prospects.

Personal Loans vs Student Loans

Personal loans and private student loans are both unsecured. There is no collateral for the lender to repossess if you default. Both can be discharged in a bankruptcy filing. Private student loans often come with lower interest rates. And they are both installment loans.

But private student loans may have lower interest rates. As of this writing, fixed interest rates range between 4.99% to 10.72% for a 15-year $10,000 loan. The rate depends on your credit score. Variable rates run 4.33% to 10.30%.

Personal loan interest rates from mainstream lenders can be as low as 6% or as high as 36%. It pays to shop.

Another advantage of personal loans is that you can use them for any purpose. So you can pay tuition, but also fix your car or fly home to visit your family.

Related: 6 Signs Your Adult Child Should Live With You

Worth It?

You might think you're too young to be paying so much attention to money. This is supposed to be the fun time in your life, when you party, make lifelong friends and generally enjoy yourself. And it is.

Yes, you have many decades in front of you when you can take life more seriously. But those decades can also be filled with regret and frustration if you mess stuff up now.

Leaving college with as little burdensome debt as possible may involve real effort and sacrifice. But it could transform your future. And you're likely to have few regrets as you watch your peers struggle to afford a first home of their own, a good car and the wedding of their dreams.

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