The College Student’s Guide to Smart Student Loan Borrowing

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A new batch of high school graduates will be entering college this fall, excited about their new journey but potentially worried about how they will pay for it. And those fears are justified. After all, the outstanding balances on student loans in the United States reached a record high of $1.57 trillion in 2020, with an average debt of $38,792 per borrower, according to data from Experian.

So how can the Class of 2022, as well as those students already enrolled in colleges and universities, fund their educations without hindering their financial futures? There are a number of smart ways to approach paying for college that won’t keep graduates tied to their loan payments for years and years.

Read on for some of the smartest student loan strategies.

Think Scholarships Before Loans

Each year, thousands of scholarship opportunities are available to incoming and current college students. Some students don’t know where to access them, and others don’t take the time to apply. They could be leaving free money on the table.

“Research and apply, and apply for as many scholarships and institutional grants as possible. These awards can be merit based, need based or both; and they can be local, national and even international,” said James Lewis, the president and co-founder of the National Society of High School Scholars and author of “College Admission — How to Get Into Your Dream School: Real Students, Real Stories.”

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“Though finding, applying for and earning this ‘free money’ can be time consuming and competitive, it is well worth the effort if that means taking out fewer loans that accrue interest and may be difficult to pay back. Start research early and apply often, making sure to identify all possible options. It is best to focus that effort on programs that are a good fit for the student’s skills, background and interests.”

Students would be surprised by how many scholarships there are.

“Get creative while brainstorming possible sources of funding,” Lewis said. “Believe it or not, there are scholarships out there just for being tall or left-handed or vegetarian. The more scholarships one applies for, the greater their chances of earning those dollars. And the smaller, less competitive awards can really add up.”

Investigate Federal Loans Before Private Loans

Once you’ve exhausted all the scholarship and grant opportunities and you find you’ll still need a loan for your education, seek federal loans first, said Travis Hornsby, a certified financial advisor who is the founder and CEO of Student Loan Planner.

“Federal loans are the better option for most borrowers because of their forgiveness options, protections from the government and several repayment options,” he said.

After that, if you still need financial assistance, students can investigate the pros and cons of private loans, Hornsby said.

“Be sure to consider lenders based on interest rates and the terms of the loan such as when repayment starts. Unlike with federal loans, repayment usually starts immediately. These loans usually have higher interest rates and are held by private lenders, rather than the federal government.”

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Don’t Borrow a Penny More Than You Need

You probably will be able to borrow more money than you actually need for tuition, books and room and board, but it isn’t wise, said Mark Kantrowitz, a financial aid guru who previously worked with

“Aim to borrow no more than your expected annual starting salary by the time you graduate. If total student loan debt is less than annual income, you should be able to repay your student loans in ten years or less,” he said. “Otherwise, you’ll struggle to make the student loan payments and will need extended repayment or income-driven repayment to afford the monthly loan payments. Borrow as little as you need, not as much as you can.”

Make Loan Repayment a Priority

When you’re out in the working world making real money for the first time, you undoubtedly will be tempted to vastly upgrade your standard of living. After dorm and college apartment life, luxury digs with a view of the city skyline and a rooftop deck sounds awesome.

Experts say to resist and continue to live below your means, putting your extra cash toward student loan repayment.

“Try to pay more than the minimum amount due each month. Paying the minimum each month will keep you in the payment cycle longer and can cost you a lot of money in interest,” said Carmen Perez, Varo Bank’s personal finance advocate.

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She speaks from experience. She paid off $57,000 in debt, mostly from student loans, in two years and nine months and created Make Real Cents, a personal finance platform.

“The small things add up. Taking stock of the things you don’t need can help you reach your goals a lot faster. Small sacrifices in the short term can be highly impactful in the long run. I cut cable for a while, packed my lunch every day for work and cut back on dining out. These things helped me get a little more money out of my budget that I was able to put toward my student loan debt that helped me pay it off faster. Remember, these tiny changes don’t have to be permanent. Think of them as are temporary sacrifices.”

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