How to Avoid Borrowing too Much to Pay for College

Barry Lenson

Avoid Borrowing too Much to Pay for CollegeA recent study by FICO Labs reports that student debt is quickly spiraling out of control . . .

  • Back in 2005-2007, 12.4% of student borrowers were defaulting on their loans. After October 2010, that percentage surged to 15.1%. That represents a 22% increase in the delinquency rate.
  • In 2005, the average debt owed on a student loan was $17,233. In 2012, it had increased to more than $27,253. That represents a 58% increase in seven years. (FICO Labs notes that during that same period, the amount Americans owed on credit card balances and car loans actually went down.)

How to Borrow Less and Prevent Financial Disaster

If you borrow less and owe less, you’ll dramatically lower the odds that you too will ever default on a loan, damage your credit rating, or file for bankruptcy.

How can you borrow less when college tuition is going up year after year? But there are ways to cut borrowing to the bone without sacrificing the quality of your education.

Dig deeper and find out what “financial aid” really means at colleges you are considering. If you scan the college rankings on US News, you’ll see that many colleges offer financial aid to 60%, 70% or 80% or more of their students. That should encourage you to apply, but talk with financial-aid officers at the colleges you are considering. What does “financial aid” mean, and given your financial circumstances, what can you expect? How much of your aid package will be a scholarship that you will not need to repay? How much will be a federal loan, or commercial loan? If you are a veteran, how will that affect how much you will owe, what the interest rates will be on the loans you take, and other factors?  Your goal should be to know ahead of time exactly how much you will owe after college, and at what rate of interest.

Use StraighterLine’s online courses to cut the cost of college by as much as 25%.  StraighterLine’s Freshman Year of College for $1,299 plan, for example, can save you the cost of a year at college. Depending on whether you attend a public or private college, that could save you between $20,000 and $50,000. If you’re not spending that money, you won’t have to borrow it.

Avoid Borrowing too Much to Pay for College
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