While there is no single ideal strategy, there are many approaches that students can use to get a leg up on student loan repayment. Each one has pros and cons, but any of the following represents a much better choice than simply waiting until the first student loan bills show up in the mailbox.

Make Interest Only Payments During School

I often suggest this route to parents concerned that their children may be getting in over their heads.

The advantage of this in-school repayment plan is that it is a monthly reminder of the consequences of student loan debt. For a first-year student in college, the interest on their loans may not seem large. As time progresses, balances grow, and interest-only payments go up. The reality of life with student loans becomes very clear. This will encourage responsible borrowing and be motivating when it comes time to find a job after school.

Another perk is that upon graduation, the amount that must be repaid is equal to the amount borrowed. For students who do not make payments, their balance at graduation is significantly larger than what they borrowed due to interest.

Pay Down the Highest Interest Rate Loan

From an accounting standpoint, this is the most efficient use of money earned during school. Eliminating the student loan with the highest interest rate will make each dollar go as far as possible.

While the math would suggest this approach, it is important to consider other options that may ultimately be more beneficial.

After college, borrowers can always shift to the strategies to eliminate the debt as quickly as mathematically possible.

Attack Private Loans First

It may come as a surprise to student loan borrowers still in school, but dealing with federal student loans after graduation is much easier than private loans. This is especially true for graduates who have a tough time finding a job or end up making less than they anticipated.

Federal loans come with important borrower protections such as income-driven repayment plans and forgiveness programs like Public Service Loan Forgiveness. Having these perks available is a huge asset to borrowers with an uncertain future.

For this reason, eliminating private student loans first can be a smart strategy in the long run. In most cases, attacking private debt first will be the ideal strategy for paying down student loans during school.

Borrowers can also use the time during college to convert their private debt into federal debt. This approach will have huge benefits after graduation and requires minimal effort during school.

Try to Eliminate a Loan Completely

Suppose you have a job with a good income for the summer between your junior and senior years. Paying down student loans is a great way to spend this money.

With a fixed amount that is fairly easy to project, it might make sense to use the money to pay off a loan entirely. Better yet, if the funds can eliminate one lender, this strategy becomes even more advantageous.

The idea is that by paying off a loan in full or eliminating a lender, you are eliminating one bill to contend with after graduation. This means one less headache and one less chance for bookkeeping errors.

Pay Down Variable Rate Loans First

Suppose you have two loans: one at 4.5% and one at 5.5%. On the surface, paying down the 5.5% loan first may seem like the obvious choice. However, if the 5.5% loan is a fixed-rate loan and the 4.5% loan is a variable rate loan, the decision isn’t as simple.

Interest rates on variable-rate loans can increase significantly over time. While some of these loans are capped at 8-10%, many can have interest rates that grow even higher. Suddenly, the 5.5% loan is the cheap one.

The question comes down to a gamble on the future of the economy and interest rates. The variable-rate loan represents much less of a risk for borrowers who expect to pay off their loans quickly after graduation. Those who take many years to pay down their student loans are much more vulnerable to the dangers of increasing interest rates.

Free Your Cosigners

If you have a loan cosigned by a family member or close friend, paying down that loan first should be given extra preference.

Even if you never miss a payment, the loan will show up on the credit report of your cosigner until it is paid off in full. This can impact their ability to get an auto loan or a mortgage. They have taken a risk cosigning a loan, and the best way to say ‘thank you’ is to prioritize paying off the debt on their credit report.

Many borrowers find it difficult to qualify for a c0signer release, so eliminating this issue during school can prevent future headaches.

After School: Look into Refinancing

As a student, you have no job or limited income and no degree. This makes students a risk to lenders. Risky borrowers get higher interest rates.

Graduates — hopefully — have a degree and a job and represent much less risk to any lender. It is for this reason that refinancing student loans after graduation is such a popular move. The refinance company pays off old student loans in full, and then the borrower repays the debt to the refinance company at a lower interest rate. Many lenders offer this service, and it can be a great way to get lower interest rates after graduation.

Bottom Line: Pay Down Student Loans During School If Possible

During school is the best time to start paying down student loans and thinking about repayment strategy.

It may seem like not much can be done, but taking advantage of any opportunity to pay down student debt is a smart move.  Sacrifices made during school will help ensure that life as a graduate is more enjoyable and less stressful.

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High tuition prices have made getting a degree without debt nearly impossible. For many students, the target is to get a degree with minimal student debt.

Leaving school with affordable and manageable debt levels requires careful planning. The students who are willing to make some sacrifices during school can get an excellent education without jeopardizing their financial future.

The Big Target: Avoid Private Student Loans

Total student debt isn’t the most significant factor in being able to afford student loan payments.

It might sound crazy, but $40,000 worth of loans could be a much more difficult challenge than $125,000.

Private loans can be brutal. Help for those facing hardships doesn’t last long. Borrowers who can’t make payments will rack up late fees and destroy their credit score.

Federal student loans are designed to always be affordable. They also provide borrowers with many paths to forgiveness. There are many flaws with federal student loans, but the perks and protections make them a far better option than private loans.

Students worried about debt after school should focus on avoiding private loans. Those looking for a degree and minimal student debt should start by sticking with federal loans.

Community College is a Great Way to Minimize Student Loans

Students across the country work hard to get into their “dream” college. Getting accepted and starting school may feel like a justified reward for hard work.

Unfortunately, this approach to college could be costly.

One of the dirty secrets of higher education is that the first couple of years of a four-year degree are often unimportant. The first two years usually include general education coursework and introductory classes. Large numbers of students also change their major during this time.

Taking these early classes at a community college can save a fortune.

Students going this route should investigate credit transfer options to various four-year schools of interest. Most community college students plan to transfer their credit to a university. Both the community college and four-year college should be able to assist with transferring credits.

Community college is ideal for students who want a degree with minimal student debt. It takes a bit of extra effort in planning, but the value is undeniable.

A Big Advantage to Community College: Unfortunately, not all students who start school will graduate. College is not for everybody. Those who attend school but don’t graduate often have the hardest time with student debt. Attending an affordably priced community college is a safe way to start school without risking your financial future.

Years Three and Four at a State’s Flagship Four-Year University

State flagship universities are usually very highly regarded and affordable for the residents of that state.

While these schools can be significantly more expensive than a community college, it is in years three and four that they prove their value.

During the last couple of years of school, students cultivate relationships with faculty experts, get exposure to the job market, develop skills in their chosen field.

If you are a computer engineering major, the professor teaching your required Intro to U.S. History course if of little importance and unlikely to influence your career path. However, the professor with connections at Intel, Google, and Apple could be very significant.

All students who graduate from a top school get the same valuable degree and exposure to the leading experts in the field. The ones who only attend for years three and four save a bundle in the process.

Other College Alternatives: Students who excel at the community college may find many new doors opened as they continue their studies. New scholarship opportunities may make out-of-state schools and private universities affordable for the final two years of studies.

Graduate Studies: Where Student Debt is Less of a Concern

A huge advantage to graduate students is that the federal student loan borrowing limits are dramatically higher.

This means students can theoretically afford to attend an expensive private college without taking on risky private student loan debt.

Further good news for graduate students is that the last degree earned usually is the most important degree. If you are hiring a lawyer, the place they went to law school matters far more than where they went for undergraduate studies.

Finally, a college graduate is in a much better position to evaluate the job marketplace and do a cost-benefit analysis of a graduate school. A high school senior will have a much bigger challenge with this task.

If a student is going to take a risk with an expensive school, it should be much later on in their studies. The high cost of education is still a major concern, but by making smart decisions early on, student debt levels can remain manageable.

Multiple Ways to Earn a Degree on Minimal Student Debt

There are many different ways to keep student loans manageable and affordable.

The purpose of this particular article was to share one way of accomplishing this goal.

The two major takeaways for students considering their options should be:

• Avoiding private student loans, and
• Saving money on classes and educational requirements that are less important.

The post How to Get a Four-Year Degree with Minimal Student Debt appeared first on The Student Loan Sherpa.