Student Loan Debt Part 1: Before and During

[J.J. Montanaro USAA]

Each day before and after my daily commute to the USAA headquarters in San Antonio, I’m struck by what seems to be an ever-increasing number of cars on the road. If I had to guess, I’d say most of those cars are not owned free and clear; there’s an accompanying loan. I bring up car loans in this article on student loans because I was perusing the Federal Reserve’s report on outstanding debt and noticed that in recent years student loan debt has, despite all those loan-laden vehicles on our roads, slid into the fast lane and zipped right by motor vehicle loans in terms of amount of outstanding debt.

That’s a troublesome trend. According to the Federal Reserve¹, Americans owe more than one and a half trillion dollars in student loan debt, and each year, graduates leave campus with more.  The College Board pegged last year’s cost for a public in-state university at about $21,000⁴. Go private, and that pops up to $47,000. With numbers like that, it’s easy to see how student loan debt will continue to grow.

How can we reverse that trend? No matter where you’re at relative to coping with college’s costs, here are some steps to consider.

Before the First Loan Application Has Been Signed:

It’s not too late (or early) to save. Every bit helps. A dollar saved is a dollar you don’t have to borrow. That means it’s never too late to start stashing money away, and 529 savings plans can be a great way to do that. Yes, get in the savings game to escape student loan debt. At a recent event, I talked with a couple that had begun to save for their yet-to-be-newborn’s college. I gave them a solid fist bump.

Begin with the end in mind. I’m still shocked when I talk with folks carrying six-figure college debt but only earning a modest post-graduation income. What’s the expected salary for one year in your new profession? Try to leave school with no more debt than that amount. That calculation likely will have a bearing on where you decide to go to school. The Bureau of Labor Statistics website offers a way to check out the earnings potential of just about any occupation.

Recognize not all financial aid is actually aid. Completing the Free Application for Federal Student Aid is a must to obtain financial aid, but be wary of aid that comes in the form of loans. Borrow only what you need, and seek out more helpful aid like grants and scholarships to foot the bill. Last year, 35% of college costs were paid with scholarships or grants, according to education-lending giant Sallie Mae. Check with employers, charitable groups and professional organizations for opportunities to earn grants and scholarships and then apply. Free money will keep debt down.

Speaking of loans … If you must borrow, start (and hopefully end) with federal loans. They offer competitive interest rates, flexible payback options and even forgiveness programs. The federal government provides a wealth of great information at studentaid.ed.gov.

During School:

House at home? In some cases, room and board expenses can equate to more than half of your total outlay for college. Minimize what you need to borrow by making a smart call on housing and you could positively impact what you need to borrow.

Scholarships are an ongoing opportunity. Don’t stop searching for scholarships once you’ve begun your education. Some opportunities may reveal themselves because of what you’re studying or the career field you are choosing.

Get an in-school job. Being a student is a full-time endeavor, but you can make the case for adding an income-producing side hustle. More income will allow you to cover expenses for which you might otherwise have to borrow.

Just because you can borrow, doesn’t mean you should. I know folks that have used student loans to fund expenses well beyond the basics, don’t do it. It’s not a lot different from prudent borrowing when it comes to buying a car or a house, just because somebody will lend you money, doesn’t mean you should borrow it.

Next week we will take a look at the next phase of Student loans: payback time.

What is your strategy for managing student loan debt? Share your advice below.

Related Posts:

Student Loan Debt Part 2: Payback Time

About the Blogger: JJ Montanaro is a Certified Financial Planner® professional and part of the Military Affairs team at USAA. He’s a graduate of the U.S. Military Academy and has over 20 years of financial planning experience.

* Disclosures: Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.

The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that relates to all personal circumstances.

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