Wealth Creation

8 Tips For Financial Planning That’ll Save You From Your Loan Burden

Student debt is a phrase that’s almost terrifying to hear for most people—and rightly so.

With the current education system in the United States, 44 million Americans were in debt by the end of 2019. A 107% increase in debt this past decade reveals a dismal state of affairs. Americans are drowning in trillions of dollars worth of debt well past their college years and into adulthood.

However, lack of financing options in one of the most expensive college systems in the world leaves very few alternatives, if at all, to these loans.

Students are forced to take on thousands of dollars of debt at outrageous interest rates in order to get through their undergraduate or graduate-level degrees.

Why are so many students forced to take on loans?

A lot of people are of the opinion that student loans are not a necessity. However, to understand the why, we must look at the how.

Student loans and grants emerged post-World-War II, as a way to encourage students from lower-income and middle-income families to attend college. The eventual goal was to increase student participation and improve educational outcomes in hopes of competing with the Soviet Union.

However, as time went by and new acts, resolutions, amendments, and programs were introduced, starting with the Higher Education Act of 1965, that launched student loans as we know them today.

Over time, changes and additions grew to be more inclusive and expansive, allowing students without sufficient backing more eligible to take these loans too. This left many students taking on loans to get through college, till the shift during the Reagan administration that made it the burden of the individual, rather than the state or the community.

By 2018, college tuition for four-year public colleges and private non-profit colleges went up by 200% and 130%, respectively. This was primarily the result of budget cuts and state funding, worsening inequality, and hindering accessibility.

However, where the public sector and state fall short, private financing options and lenders help students get through college on low-interest loans and financial plans.

How can you plan for a debt-free future?

Planning for your financial security is the key to a debt-free future. You need to be prepared and stay on top of your game in order to pay off your loan within a certain time-frame.

Some of the best ways to prevent crippling debt by the time you graduate include:

Finding a credible lender and protect your interests.

Federal loans tend to have certain limitations, such as a restriction on the amount you’re given each year and require you to fill out a form each year to re-evaluate your financial standing and income.

The process can be useful for many students, especially when combined with personal loans, but it’s often insufficient for covering the skyrocketing costs of college.

Find a reliable education loan finance provider whose values and interests align with yours. Read through documents, contracts, repayment plans, and know what you’re getting into.

Applying for as many grants and scholarships as possible

While it’s great to have a loan that allows you to be flexible and not worry about financing your education, it’s also crucial that you get in as much leeway as possible.

Partial scholarships and grants go a long way with helping take part of the load off. For this, it’s important that you focus on your high-school education, ECAs, AP courses, and anything that gives you an edge over other applicants.

Considering the pros and cons of the college you choose

Is that private school across the country really worth the extra money you’ll be paying?

College represents freedom, excitement, adventure, a new start, and so much promise for a lot of young minds, which is why they’re eager to take on massive debt to go to their ‘dream school.’

But it’s worth considering the pros and cons of your choice. Think about the added cost of being out of state, dorm and tuition fee, commute and travel costs, and many other factors that add up.

If you can get the same degree from a public school or shorter program, don’t dismiss the alternative.

Working and saving before and during your college degree.

Early planning is the key to financing yourself without stress. The sooner you start working, the sooner you can start saving. This doesn’t mean you give up your social life and free time.

College is rigorous, and stress and anxiety among college students are at an all-time high, which is why you need to make time for self-care and recreational activities.

However, working part-time and during breaks, especially if they’re paid internships that boost your resume, make a huge difference. Even if you can’t pay your tuition, being able to afford living costs and day-to-day, it’s a win.

Setting up a savings account helps you store away money that you earn for future use and is a quintessential step to long-term management.

Learning how to make long- and short-term budgets

Having short and long-term budgets will help you manage your day-to-day expenses better. When you have a goal in mind and work toward it, the choices you make during the every day will change.

If you have a certain amount set aside for miscellaneous costs, such as clothing, recreation, course materials, find ways to save there. Buy used textbooks, digital copies, share with classmates, or use copies from the library.

Thrift your clothes, or sell your old ones to avoid spending tons on new outfits. Learn to cook for yourself and make use of your dorm or accommodation’s kitchen.

Budgeting doesn’t just mean you manage the expenses you have; it also includes cutting down avoidable and unnecessary costs. It’s a skill that will get you through life.

Develop skill-sets that allow you to take on side jobs

While your loan should not be more than the expected income for your first year, often things don’t go as planned.

You don’t always get that job you worked for, or your pay isn’t as high as expected. Having transferrable skills that you can use to make additional income can help you pay more and faster.

For instance, freelance photography, design, or writing alongside your day job, can be your side gig. Of course, this isn’t ideal for most people, because working even one job full-time is incredibly difficult.

Paying off the principal amount as soon as you can

The more you pay off at the start, the lower your interest will be. A lot of students make the mistake of waiting for years and sticking to minimum repayment amounts, but if you’re able to save and/or afford it with your pay, return as much of the principal amount as possible.

Some repayment plans allow you do start doing this while you’re in college too. If it works for you, go for it.

Smaller installations might give you more room for leisure right now, but when you’re dealing with more responsibilities, such as raising a family, buying or renting a home, paying bills, it gets harder to do that.

Setting up long-term automatic payments and deductions

Another nifty option for those who struggle with making payments on time and budgeting is to set up automatic payments. This means, at the start of each month, for instance, a certain amount will automatically be deducted from your account.

This reduces the room for missed payments and issues that might arise, including a weakened credit score.

Student loans can be cumbersome, but they don’t have to weigh on you for decades. The sooner you start planning, the easier it gets to manage. You just need to have foresight and insight, rather than going on a whim. Treat your loan as a responsibility, not a handout.

Learn more about loan financing and repayments to plan for a more financially secure, debt-free future!

About the Author

The author is a consultant and student loan expert at ELFI (Education Loan Finance)—one of the leading student loan providers in the U.S. Working closely with students going to or in college, as well as fresh graduates, she helps secure low-interest loans and creates repayment plans.