Page 38 - AAA Magazine – AAA Ohio Auto Club – May 2020

6 Tips for Reducing and Eliminating College Debt
The student debt crisis has been getting a lot of attention recently and for good reason. Graduates often face repayment schedules that span decades, creating challenges when it comes to buying homes, saving for retirement and even meeting ordinary living expenses.
The very best time to reduce student debt is before it’s even incurred. By saving early, exploring educational options and planning carefully, the college-bound can avoid taking on massive amounts of debt. Some ways to do that include:
Save ahead of time. Lucky are the students whose parents started savings accounts to help fund their college educations. Students can help as well by saving a portion of their earnings from part-time jobs during the high school years. Savings earn interest and borrowing costs interest, so every dollar saved to put toward college expenses helps alleviate more than a dollar’s worth of debt down the road.
Consider attending in-state public colleges and schools with a “no loans” financial aid policy. Most state colleges offer a quality education at prices much lower than private schools and provide price breaks
to residents of the state. Several colleges – including some elite institutions – offer programs that help reduce or eliminate student loan debt. Some help all students and others tie assistance to need. These schools generally replace debt with grants, scholarships and work-study programs.
Strive to cap student loan debt. One rule of thumb advises that at graduation, total student loan debt should be less than the student’s expected annual starting salary. By following this guideline, the debt should be repayable in 10 years or less.
Savings earn interest and borrowing costs interest, so every dollar saved to put toward college expenses helps alleviate more than a dollar’s worth of debt down the road.
When loan payments start after graduation, use these tips to pay off loans faster:
Automate payments. Many lenders offer a small reduction in interest rates to borrowers who allow them to deduct the monthly amount from their bank accounts automatically.
Accelerate payback. Determine which loan has the highest rate, then set aside some extra money each month to make an additional payment towards the principal. Once that loan has been paid off early, use the same strategy on the loan with the next-highest interest rate.
Split payments. One strategy that can help reduce a loan balance faster is to divide the monthly payment into two parts. For example, if the monthly payment is $200, pay $100 on the 15th of the month and $100 on the 30th. Many people find this method easier to manage financially since they get paid biweekly.
Also, 26 biweekly payments are the equivalent of
13 monthly payments, which means the loan gets
paid off faster.
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36 | AAA MAGAZINE