College is supposed to be a stepping stone to a better career and a bigger salary. But it’s also notorious for creating debt that can be almost impossible to eliminate. Avoiding crushing student loans and credit card debt that can lead to serious life delays takes careful planning.

That’s why our team at Debt.com created this college financial planning guide. We want to help parents, young adults and returning students realize the dream of college without massive debt. If you have questions about your loans, debt, or budget, call us at . We’ll connect you with a specialist that can provide customized debt and budget advice for free.

Table of Contents

Step 1: Understand college costs

Here’s a fact: College is expensive, and it just keeps getting more expensive.

Until something happens to change that, students and families need to understand and plan for those high costs. It’s the first realistic step to avoiding college debt. Higher education is worth it, but only if it’s pursued practically.

So, let’s look at hard numbers for the cost of a college education:

Expenses Public two-year in-district Public four-year in-state Public four-year out-of-state Private non-profit four year
Tuition / fees $3,800 $10,740 $27,560 $38,070
Room & board $9,330 $11,950 $11,950 $13,620
Books, supplies, transportation and other expenses $5,700 $4,640 $4,640 $4,110
Total cost for one academic year $18,830 $27,330 $44,150 $55,800

 

Expenses Bachelors (public four-year) Masters Doctoral
Tuition / fees $8,940 $9,000 $11,620
Room & board $11,060 $10,980 $12,500
Total cost without expenses $20,000 $19,980 $24,120

 

Expenses Bachelors (private nonprofit four-year) Masters (private nonprofit) Doctoral (private nonprofit)
Tuition and fees $38,290 $29,670 $44,830
Room and board $12,640 $12,800 $15,530
Total cost without expenses $50,930 $42,470 $61,360

There are some basic facts about college costs that can be tough to convince a teenager to believe. Convincing many to consider staying in-state instead of going out of state can be tough. Convincing more than staying home and going to a community college first can be nearly impossible.

Still, the numbers don’t lie. If you’re a young adult that wants to go out of state or a parent that wants to give your child the school of their choice, that’s going to take work ahead of time. That’s the only way to avoid debt.

If you’re returning to school to get your degree, hopefully, you can be a little more practical. The good news for those pursuing advanced degrees is that they usually take less time. Of course, some programs can be incredibly expensive.

College cost versus career earning potential

No matter your age, make sure that the education you want is worth the cost it will take to get it. There are ways to lower those costs, but be realistic about the cost of the education you want. A six-figure debt may be worth it for a six-figure career, but you’ll need that big salary. Changing gears to do something else in life could be an expensive choice.

A good general rule of thumb is that the student loans you incur earning your degree should not exceed the salary you’d make in the first year. If your student loan balance is higher than your annual salary, that could lead to significant problems when you leave school.

Look into schools being considered

With all that in mind, this first step in college planning boils down to assessing the cost of that higher education:

  • What’s the annual cost of the school, including all costs that would need to be covered?
  • How long will getting the degree take?
  • How long do you have to plan and save?

These questions are easier for returning students pursuing continuing education. For parents starting early, the answers will be broad if you’re starting early. Then they’ll get more specific as your children grow. The plan can be refined, but at least by starting here, you have a jumping-off point to craft your college financial plan.

Step 2: Use all saving and cost-cutting measures

The next step in college financial planning needs to happen as early as possible. From a practical standpoint, the longer the road to college, the easier it is to minimize debt. Parents who start saving early minimize the need for student loans for their children and themselves. Those pursuing higher education who take time to plan and save will have an easier time avoiding debt as well.

However, even if you’re not starting early, there are still things you can do in this step to quickly help lower those costs. So, let’s go through all the advance-planning you can do to avoid college debt.

College savings accounts

Don’t skip over this section if you’re continuing your education!

Saving for college requires a specialized tool known as a college savings account. There are several types:

  • 529 college savings plans
  • 529 prepaid tuition plans
  • Coverdell Education Savings Account (ESA)

Different states offer different 529 plans and they’re the most popular way to save. Make sure to look up your state’s rules because they can be very different. Some don’t let you use the funds out-of-state.

So, know the rules where you live and then decide if the in-state plan is the best option. It usually offers the best tax advantages. In other words, you get a break on your taxes while building college savings.

Whichever plan you choose, it grows like a retirement account because the funds you contribute get invested. It’s growth on your money that you just can’t get with a standard savings account, so it’s worth it.

Finally, as the first line suggests, people often think college savings plans are only for saving for children. However, if you’re planning to advance your degree or going to college once you’re more established, this can be a viable option for you, too.

Scholarships

Returning students, don’t skip this section either!

The value of scholarships cannot be understated. People award you money simply for doing something or being a particular someone or excelling at a particular skill. It’s money with no requirement of repayment or strings attached. You win a scholarship award, you get the money.

Every $100 or $500 or $1,000 you win means that much less to borrow or charge on credit cards. Bigger scholarships mean bigger savings, but even the little ones add up.

So, as a student, no matter your age or life stage, find and get as many scholarships as you can. Find weird ones. You’d be surprised what people give away money for when it comes to scholarships.

If you’re a young adult, you should apply for every scholarship that comes up. Foster your hobbies and talents and find scholarship awards you can win with them. Returning students, there are scholarships for you, too. Seek those out.

Final note: From people that give away a $500 scholarship every three months to help students avoid a little debt, please follow instructions. Meet deadlines, read instructions carefully and follow them closely. If you have questions, just ask!

Tuition assistance

Employers have recognized the value of helping workers get their education. From hourly jobs like Starbucks and Amazon that want to help their workers advance in life to companies that want to help employees advance up the ladder, your job could be willing to help you advance your education.

If you’re returning to school, ask your employer if they would be willing to provide tuition assistance. If not, they may at least be willing to pay for certifications that could advance your salary without those college costs.

If you’re working your way through school, consider a job that provides tuition assistance. Seek out employers that offer it as a benefit.

For young adults, there’s one big organization that provides some of the best educational assistance you’ll find anywhere in the world—the U.S. military. The GI Bill helps those who serve to get a higher education.

Get credits before college or skip credits as you enter

If you’re a young adult or a parent trying to help you and your child save, there are a range of options that can help you minimize the number of general college credits you need to take:

  • Advanced Placement (AP) classes
  • International Baccalaureate
  • Dual enrollment

Every college credit you can earn before getting to that high-dollar school you want to attend is one less class to repay later. The tests may cost money, but they can help you save thousands if you study diligently and pass.

For returning students, you may be able to take college placement tests to confirm you know the course material. Some schools now will even give college credits for work experience, although you may still need to pass a test based on the curriculum.

You can also avoid the higher cost of credits at a four-year school by going to a two-year associate’s program. Taking general requirement classes at a community college equates to sizable savings. Just make sure the credits will transfer to the school where you want to get your bachelor’s degree.

Step 3: Apply for federal and institutional aid

If you plan on enrolling in college for the fall semester, October 1 of the year prior is an important date. That’s the day that the Free Application for Federal Student Aid (FAFSA) opens.

This application determines the federal financial aid you are eligible to receive. Federal aid comes in three parts:

  1. Work-study programs
  2. Grants
  3. Federal student loans

The first two of those are your last opportunities heading into school to minimize your loans. The last determines how easy it will be to manage the student loan debt you’ll take on for school.

So, applying for federal financial aid promptly is crucial because it’s on a first-come, first-served basis. You have until June 30 of the following year from when the season opens to apply. However, you want to apply as early as possible.

Even though it’s called federal financial aid, it gets distributed by colleges themselves. You can list up to 10 schools on FAFSA and each will provide a financial aid award letter. It will indicate what aid you can receive from that school.

Choosing a school based on aid makes sense if you’re looking at a large student loan bill. If one school offers grants and work-study, it may be preferable to another. For most career paths, the school where you earn a degree matters very little compared to the degree you earn.

So, let’s look at the three parts that make up federal financial aid and the role they each play in your college financial plan.

Work-study programs

Work-study programs allow to you work part-time in a paid role for the school you attend. The jobs are usually on campus, such as working in a computer lab. However, there may be off-campus jobs as well. such as working with a school-affiliated nonprofit.

Earning money while you attend school means less you need to borrow to cover things like living expenses. Working on campus in a work-study is convenient, especially if you live on campus. It can also give you valuable experience in your career path in many cases.

Colleges hand out work-study jobs based on financial need. If your FAFSA application shows your household has a high financial need for assistance, you may get one.

Grants

Federal grants are also given out based on financial need. Grants are essentially money you receive that doesn’t need to be paid back. So, unlike loans, grants minimize the financial burden you’ll leave school carrying in most cases.

Some grants have requirements you must meet besides financial need. They may also require you to maintain certain academic and career standards. Failing to keep up with those requirements means you could have to repay the grant.

By and large, however, grants don’t get repaid and give you another portion of those college costs you won’t be stuck repaying later.

Here are a few examples of common grants:

  • Awarded to undergraduate students who have exceptional financial need and have not earned a bachelor’s, graduate, or professional degree
  • Meet certain requirements to be eligible for a larger Pell Grant if the student’s parent died as a result of military service in Iraq or Afghanistan or in-the-line-of-duty as a public safety officer
  • Pell Grant lifetime eligibility is limited to 12 semesters or the equivalent
  • Annual award of up to $6,495 for the 2021–22 award year
  • Awarded to undergraduate students who have exceptional financial need and have not earned a bachelor’s or graduate degree
  • Federal Pell Grant recipients receive priority
  • Some schools participate in this program
  • Funds depend on availability at the school
  • Annual award of up to $4,000 per year
  • For undergraduate, postbaccalaureate, or graduate students enrolled in programs designed to prepare them to teach in a high need field at the elementary or secondary school level
  • Must agree to serve for a minimum of four years within eight years of completing or ceasing enrollment in the program as a full-time teacher in a high-need field in a school or educational service agency that serves low-income students
  • Must attend a participating school and meet certain academic achievement requirements
  • Failure to complete the teaching service commitment will result in the grant being converted to a Direct Unsubsidized Loan that must be repaid
  • Annual award of up to $3,772 for grants first disbursed on or after Oct. 1, 2021, and before Oct. 1, 2022
  • For students whose parent or guardian was a member of the U.S. armed forces and died as a result of performing military service in Iraq or Afghanistan after the events of 9/11
  • Must be ineligible for a Pell Grant due to having lower financial need than required
  • Must have been younger than 24 years old or enrolled at least part-time at a college or career school at the time of the parent’s or guardian’s death
  • Annual award of up to $6,124.79 for grants first disbursed on or after Oct. 1, 2021, and before Oct. 1, 2022

Federal student loans

The last part of federal aid is where debt enters the picture. After all the cost-cutting measures in Step 2 and the free federal aid, what’s left falls on student loans.

Even here, however, there is a key step in college financial planning. Now begins the quest to make student loan debt as manageable as possible. Certain student loans will make that easier.

There are two types of loans students get through FAFSA:

  • Subsidized Direct Loans are the best student loans you can get if you must get loans.
    • The government pays the interest while you’re enrolled, during the grace period after you leave school, and during deferment periods.
    • So, your balance stays the same until you start repaying the leans.
    • Interest only applies during repayment periods
  • Unsubsidized Direct Loans are also federal loans you get through FAFSA, but the government doesn’t pay your interest charges.
    • Your debt will grow with interest charges every month while you attend school and when you request a deferment.
    • Unless you pay off the interest while you attend school your balance will increase while you get your education.

Both of these options are still preferable to private student loans. They both offer deferment and forbearance for financial hardship, and offer flexible income-based repayment plans. They also have the option of qualifying for loan forgiveness, if you work as a public servant or volunteer.

Thus, your first step in managing your student loan is to understand the loans you will need to take out. Then promptly craft a strategy to manage those loans while you attend school.

Learn more about applying for student loans »

Institutional aid

Some colleges have a second application for you to fill out aside from FAFSA. It’s called the College Scholarship Service (CSS) profile. Unlike FAFSA, this one will cost you. There’s a $25 application fee with an additional $16 fee for each additional school where you apply.

However, CSS can provide additional work-study, grants, and even loans that you can’t get through FAFSA. So, it may be worth it to apply if the college you want to attend uses CSS. You can limit the cost by only applying to your top school choice.

Step 4: Be frugal and financially savvy in school

College financial planning isn’t done once you start your first semester. In fact, it’s just started. Every financial decision you make between now and when you leave school determines how easy it will be to move forward.

If you graduate on time with the degree you intended that can handle the debt you’ve taken on, the road will be easier. If you drop classes that are paid for and borrow more to make life cushier then it may be harder.

It’s not the most thrilling idea, but you need to go through college with the final price tag in mind. That means:

  • Living as frugally as possible. If living on campus is cheaper, you do it. If having a campus meal plan is cheaper, you do it. Whatever saves you money, you do that thing.
  • Maintain a budget. Whether you’re working your way through school, living on a part-time income, or getting help from family, budget. You need to build a budget that allows you to live within your means.
  • Only use loans for absolute necessities. Just because you can ask your financial aid office for more unsubsidized loans, it doesn’t mean you should. It may be tempting, but don’t leave your future self to pick up a tab for living more comfortably now.
  • Avoid using credit cards for expenses you can’t afford. Credit card debt is not your friend in college. So, unless you can pay off charges in full every month, you shouldn’t make them. Don’t use credit cards for daily expenses or major purchases, fun trips, or any other temptation that can come with credit cards in college.
  • Manage your loans while you attend school. Aside from doing what you can to keep your debt as low as possible, there are also steps you can take to control it during school. For example, paying interest on unsubsidized loans will help you avoid a steadily growing balance while you study.

Should you avoid credit cards in college?

This is a key question for students, especially young students that don’t have an established history with credit. Leaving college with credit card debt is not a recipe for financial success. On the other hand, not having a credit score can be as problematic as having a bad one.

So, there is some good rationale for having a credit card in college to build credit. It will make achieving many of those major life goals you want to achieve that much easier. Just be careful because those temptations we just mentioned are real.

Step 5: Create a college transition plan for leaving school

The last step in college financial planning is planning for what happens next. Ideally, you should be getting your degree and focusing on launching yourself to the next stage of life. However, that’s not the only exit plan you may need to create. No matter the case, as soon as you see your college exit coming, you need to start planning for it.

As much as you may have other goals—like career goals—top of mind as you leave school, financial goals need to be at the forefront, too. These should be the top ones:

  1. Find the fastest and most affordable way to get out of student loan debt.
  2. Establish a balanced budget with your student loan payments included.
  3. Pay off any credit card debt you accumulated during college.
  4. Start saving for emergencies and your retirement

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Brush up on student loan repayment plans

You have plenty of options for paying off federal student loans. You can tailor your repayment plan to fit your goals. There are almost a dozen plans to choose from, whether you want taster repayment or you need the lowest payments.

The good news is that you don’t need to lock into one plan. You can choose one that fits your needs now. If your needs change, you can switch. You can change plans as often as you need to, so your payments can fit your evolving goals.

Get a complete guide to student loan repayment plans »

Understand student loan forgiveness

Student loans are one of the few types of debt that offer real forgiveness. If you meet a set of criteria, all or part of your student loan debt disappears without penalties.

Generally, loan forgiveness gets earned through service:

  • You can serve the public good like nurses and teachers often do
  • Military service also offers student loan forgiveness
  • Volunteers can also earn forgiveness

Learn about all your student loan forgiveness options »

Dealing with private student loans

If you get a great job with an excellent salary right out of college, private student loans may be easy. For borrowers with great credit and job security, even private student loan refinancing can be a fantastic option. You can lower the interest rate on all your loans, making it easier to pay them off quickly.

In other situations, private loans can be problematic. If you can’t find a good job quickly or don’t have the salary you need, relief options may be limited. Student loan collectors can be vicious and even though they’re private, these loans can be tough to discharge through bankruptcy.

If you have student loans in collections, settlement may be an option you can explore. It will depend on the lender and your situation. Debt settlement services may be beneficial if you need help negotiating with your lenders.

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Article last modified on May 23, 2022. Published by Debt.com, LLC