11 strategies to avoid student loan debt

Pay ahead to stay ahead: College loans
Pay ahead to stay ahead: College loans

Just because the average grad carries more than $30,000 in student loan debt doesn't mean current and future students should resign themselves to the same fate. There are plenty of ways to reduce or limit your loan balance before graduation.

Loan balances continue to rise. In 2005, the average college graduate left campus owing $18,259, according to the Project on Student Debt. This year, college resource site estimates the average grad's balance is $35,051. (Recent grads aren't without recourse, either. Check out the video above for strategies to make payments more manageable.)

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To avoid that debt—and the problems that can follow it—parents and students can employ many strategies, depending on their timeline to graduation. "Fundamentally, you either have to increase other sources of money besides loans, or you have to reduce the cost," said Mark Kantrowitz, senior vice president and publisher at "There's no other way around it." Every dollar you borrow now works out to $2 you'll have to pay back later, he said. Here's how to reduce borrowing:

Save. If you have a longer timeline to work with, the best strategy is simple: Start saving. Although 89 percent of parents expect their child will attend college and benefit from that education, just 48 percent are saving for that goal, according to a recent Sallie Mae survey. The average savings balance is $10,040, but that's still $10,040 less that has to come from other sources. And even small monthly contributions add up over an 18-year timeframe.

Pick a cheaper college. The lower your cost, the lower the debt burden, so start researching and talking about college expenses well before it's time to apply, said Therese Nicklas, a certified financial planner with U.S. Wealth Management in Boston. Parents should take charge steering that conversation, she said—what kinds of colleges work with the family's savings and budget, for example, how that college choice will influence loans required. Ideally, students' loan balance shouldn't exceed their expected starting salary. As part of the hunt, price out a variety of options. "You're going to find some colleges that are very reasonable," she said. Some might have more generous aid policies, or cheaper pricing for in-state residents.

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Plan out spending strategies. Think about paying for college as a four-year strategy rather than one to assess year by year, said certified financial planner Evelyn Zohlen, president of Inspired Financial in Huntington Beach, California. Depending on how much you've saved, splitting savings evenly across four years may not be the smartest plan. "Then you're borrowing money in years one and two and accruing interest on that over four years, which you may not need to do," she said. But it can also hurt to have a too-big cost gap in later years that exceeds the cap on federal loans, requiring families to turn to pricier private options. It can help to hire a planner or consultant to find the best strategy of which savings to spend down, when, factoring in rising costs and shifting aid offers.

Borrow wisely. Maximize federal student loans before turning to private ones, said Kantrowitz. Private loans typically have higher rates and may allow interest to compound more frequently while you're in school. More important, private loans don't have the same provisions in place for forgiveness, deferment or forbearance.

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Transfer. Starting out at a community college or other low-cost option with intent to transfer can cut costs substantially. During the 2014-15 academic year, the average tuition and fees at a four-year private college was $31,231, according to The College Board. In comparison, tuition and fees at a public four-year college cost $9,139 and a public two-year college, $3,347. But transferring is a strategy that requires a lot of planning. "It's a detour where you may not reach your destination," said Kantrowitz. Credits don't always transfer or fulfill required classes, which can limit which colleges one can transfer to and require in more time to earn a degree—eating into any early savings. Transfer students are also often offered less financial aid than they would be if they enrolled as freshmen, he said.

Finagle financial aid. During the 2014-15 academic year, the average undergrad received $8,080 in grants, while graduate students received $8,540, according to The College Board. That's aid that doesn't need to be paid back. Offers can sometimes be negotiable, and aid may free up once enrollment is set, said Nicklas. "Don't be afraid to ask," she said. Of course, you can also hunt for outside scholarships—just check to make sure that the college won't count them to reduce aid it offers.

Accelerate graduation. Map out classes to get that four-year degree in less time—or graduate in four years with two majors or part of a graduate degree under your belt. "An important step you can take to make sure you graduate on time is to plan a path from matriculation to completion," said Kantrowitz. "What classes are you going to take? When? It may be you have to take this class this particular semester." If a class is already full, make your case and ask for an enrollment override from the professor, or the dean's office. Although most colleges require 12 credit hours per semester to be considered full-time, they may allow students to take up to 18 before incurring additional tuition. Or add in a summer class, which are usually less expensive, he said.

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Pay in installments. If you can pay the tuition, but not all at once, ask about a tuition installment plan instead of loans, Zohlen said. These break up the bill into equal monthly installments paid over a semester or year. There's an upfront setup fee, but it's usually less than $100.

Cut living expenses. If you're using student loan money to cover expenses beyond tuition, consider what you can do to reduce those costs. "Financial choices always have implications," said Zohlen—in the case of student loans, ones that can take 10 to 15 years to pay off. That might mean living at home instead of on campus, renting textbooks instead of buying them, or reducing dining-out expenses to make the most of that included meal plan.

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Work. On-campus work-study opportunities can also be used to replace or reduce loans, said Nicklas—her son snagged a job as a resident assistant, which covered his room and board. But remember that student is the first job at hand, said Kantrowitz. Taking on too many hours may eat into necessary study time to keep grades high enough to retain scholarship funds. Opt for an off-campus job, and financial aid could be reduced if you earn more than $6,400 in the 2015-16 academic year, he said.

Prepay loans. Windfalls like tax refunds, pay raises or gifts could be used to cut loan balances and, depending on the loan, interest accrued. "Nothing stops you from making an extra payment to reduce the loan balance, and you can even do that while you're in school," said Kantrowitz. But it may be better to use that money to borrow less in future years rather than prepay. "If you're effectively borrowing more money so you can pay the interest, are you really coming out ahead?" he said.