How to Graduate with Little or No Debt
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Student loan debt is largely unavoidable. About two-thirds of Bachelor's degree recipients graduate with student loans to repay. Among those who apply for financial aid, the figure is seven-eighths.
While most students would like to avoid student loan debt in its entirety, that may not be possible. Instead, they should focus on minimizing their indebtedness. There are several ways to do this.
Working through college is not an effective means of eliminating all student loan debt. Students who work part-time (12 hours or less a week) are twice as likely to graduate within six years as students who work full-time (40 hours or more a week). Part-time work improves academic performance by forcing the student to learn essential time management skills. Full-time work, on the other hand, takes too much time away from academics. Students who work full-time during the school year are half as likely to graduate. Enroll full-time and work part-time, not vice versa.
Mark Kantrowitz, Publisher of Edvisors, analyzed data from the 2007–08 National Postsecondary Student Aid Study (NPSAS) and found the following characteristics as predictive of graduating with little or no student loan debt:
- Enrollment at an in-state public college. Despite the cutbacks in state support for public colleges and the increases in tuition, these are still among the least expensive options for pursuing a college degree. Students who graduate from public colleges and universities are less likely to have borrowed, and those who do borrow tend to graduate with less debt.
- Enrollment in a 2-year or shorter program. Community colleges are among the least expensive colleges. Half of undergraduate students who graduated with no debt graduated from a community college and a third graduated from a public 4-year college.
- Enrollment in a low-cost college. Another way of characterizing the type of college where students are least likely to graduate with debt is the college cost. Seven-eighths of students who graduate with no debt graduate from a college with annual tuition and fees of $10,000 or less.
- No loans colleges. There are also about six dozen mostly independent non-profit colleges that have adopted generous "no loans" financial aid policies. Students can still choose to borrow at these schools for their share of college costs, but the financial aid awards offered by these schools will not include any student loans. A full-need student might graduate with no debt. For example, the average debt at graduation for Princeton University, the school that started the no loan trend in the 1998-99 academic year, was $5,640 in 2011-12, with only 5% of undergraduate students borrowing to pay for their education.
- Living at home with parents. Students who enroll at an in-state college can further save on college costs by living at-home with their parents. Most community colleges are non-residential. But this is also true of students who graduate from residential 4-year institutions. Another way to save for students who go to school far from home is to live in an apartment and share the rent with a roommate. Students can also minimize the number of trips home from school to save on travel costs.
- Spending less on textbooks. Students who graduate with no debt are more likely to spend less than $1,000 a year on textbooks. They rent textbooks or buy used textbooks and sell their textbooks back to the bookstore at the end of the academic term.
The financial resources of a student's parents can also have a big impact on debt at graduation. Fifty-six percent of high-income undergraduate students graduated with no debt, compared with 45% of middle-income students and 36% of low-income students. This makes sense, since more than two-thirds of students who graduate with no debt received help from their parents paying for tuition and fees. If parents have advanced degrees, the students are more likely to graduate with no debt, possibly due to a correlation with income.
Keep debt in sync with income. Students should aim to have total student loan debt at graduation less than their expected annual starting salary and, ideally, a lot less. If total student loan debt is less than annual income, the student will be able to repay his or her loans in ten years or less. If total student loan debt exceeds annual income, the student will struggle to repay the loans and may need an alternate repayment plan like extended repayment or income-based repayment in order to afford monthly loan repayments. This means they may still be repaying their own student loans when their children enroll in college, making it less likely that they will have saved for their children's college education. These parents will also be less willing to borrow to help their children pay for college.
Do not change academic majors or transfer colleges. This increases time to finish by about a year and may increase debt. Consider tuition installment plans as a less expensive alternative to long-term debt. Tuition installment plans let students pay their college bills in equal installments over the academic year. Tuition installment plans do not charge interest, but typically charge an up-front fee of $50 to $100. Check with your college or university for more information about this possible option.
Live like a student while you are in school so you do not have to live like a student after you graduate.
»For these tips and more, download our tip sheet on graduating with little or no debt.