College Debt - how to avoid it, and how to get out of it

Because most college students are using loans to finance their college education, the debt level of recent graduates is rising rapidly. On average, students graduate owing $12,000-$16,000 in student loans and another $2,000 in credit card debt. Is this the price you have to pay for higher education, or can you avoid college debt in the first place?

The secret to avoiding college debt is to plan wisely and take advantage of the many opportunities to reduce college costs before and during your college years.

Planning ahead

You can avoid college debt by making wise high school decisions:

Take advanced placement classes

Take all the advanced placement classes you can in high school--every AP exam you pass means one less class you need to take in college.

Keep your grades up

Scholarships can be competitive, and even the grades you make early in your high school years can mean the difference in winning or losing. Don't make the mistake of thinking you can save the hard work for your junior and senior years!

Stay involved

Scholarships also may depend on community and school involvement.

Search for scholarships and grants

Scholarships and grants are the best money source for college because it is money that doesn't have to be repaid. To find out about grants and scholarships, visit your high school career counselor and the Financial Aid Office of your intended college. You can also search the internet for scholarships and grants.

Investigate public service options

The United States Military, National Health Service Corps, and Americorps will give you money for your education in exchange for your signing up for a "tour of duty." The time commitment ranges from 10-12 months to 8 years.

Living wisely

The chances to make wise decisions and avoid debt continue into your college years.

Start out in a community college

Most towns and cities have two-year community colleges where you can take your basic courses at less cost than at a four-year college or university. Just investigate to make sure your community college credits will transfer.

Take advantage of Work-Study programs

If you qualify for the federal work-study program, take advantage of it! You will have an on-campus job, possibly in your field of study.

Or work for the school

Many colleges give discounted or free tuition to employees and their family members. There are lots of non-teaching jobs on campus that you can apply for.

Live frugally

Live at home or get a roommate. Avoid expensive spring break trips. Buy used textbooks, and sell your books at the end of the semester.

I already have a loan. Now what?

If you have a federal student loan, it is possible to have your loan debt discharged (canceled) or reduced, under certain specific circumstances:

• You die or become totally and permanently disabled
• Your school closed before you could complete your program
• You work in certain designated public school service professions (such as teaching in a low-income school)
• You file for bankruptcy (only if the bankruptcy court rules that repayment would cause undue hardship.)

As you can see, there are many steps to avoiding or relieving college debt. To best manage your debt it is wise to implement a combination of the strategies listed above that work best for you.

Consolidating Federal Student Loans Keeps Graduates on Course

Although many people have achieved the dream of completing their college education, many of them face an unfortunate downside following graduation: paying back the inevitable student loan.

Too often it is not just one loan looming over students, many of whom have yet to settle into the sometimes overwhelming realities of the workforce and daily life.

NextStudent, one of the nation's premier education funding companies, can be the proverbial light at the end of the tunnel by helping students consolidate their multiple federal loans. From Stafford Loans and Perkins Loans to PLUS Loans and HPSL Loans, NextStudent's Federal Student Loan Consolidation Program equals convenience.

"Although the 2.77 percent interest rate on federal loans was at an all-time low between July 1, 2004 and July 1, 2005, the lowest the rates ever had hit in history, now is still a good time to consolidate," said Andrew Ernstrom, education finance adviser at Phoenix-based NextStudent.

Currently the interest rate is in the 5 percent range and is expected to again increase in July 2006. The cap on the program is 8.25 percent, but projections for the next increase are between one or two points.

"Everyone knew the rates were going up about 2 percent this past July 1," Ernstrom said. "So there was a mad dash nationwide to get everyone's loans consolidated," which allowed borrowers to take their variable rate loans and then lock them into a fixed rate.

Historically during the past 40 years interest rates averaged closer to 7 percent.

An important aspect of consolidation includes the six-month grace period. "Make sure to consolidate while you're in the six-month grace period because you get a cheaper interest rate," he said. The rate increases .6 percent when the grace period ends.

Students have been gung-ho about federal loan consolidation. "The only reason people wouldn't consolidate is because they don't think the rates will go up, but all the trends out there say they will, so it makes sense to do it now," Ernstrom said. The interest rates for student loans are set up off of the 91-day Treasury bill. Since May 30 when the rate was reset, the rate increased about .92 percent. "If the rates were reset today, everyone's rates would be .92 percent higher. And by next July who knows how high it could go," he said.

NextStudent's Federal Student Loan Consolidation Program extends loan payments up to 30 years, depending on a borrower's balance. As many people originally take out loans on a 10-year repayment plan, consolidation offers the same interest rate on the same amount of money but at a longer term, making the payment much more affordable. There are no prepayment penalties for the program, so borrowers can pay off loans at their own pace and have the benefit of a longer term if needed. Consolidation can decrease some payments up to 60 percent.

Even if students already have consolidated, NextStudent can help further lower their interest rate with reconsolidation, which allows borrowers to reset their forbearance and deferment rights, take advantage of new industry discounts and also can lower their payment.

"In the past students who had consolidated did not have the opportunity to consolidate again unless they took out new student loans," said Katie Carpenter, education finance manager at NextStudent. "In the past few months the Department of Education has allowed all previously consolidated loans to be reconsolidated," she added.

In turn, consolidation is the answer not only for students paying back their loans but for lenders. According to the Oct. 23, 2005 article titled "College loan plan raises questions" at NCTimes.com (North County Times) by J. Stryker Meyer, "A General Accounting Office report noted that people who consolidate their loans are three times less likely to default on their student loans."