Student Debt: Avoiding, Minimizing, and Paying

By Dr Lonny Ness

There has been much press recently regarding the student debt crisis. One measure of this crisis is the Debt-to-Income Ratio as it relates to student loan debt. According to Earnest, the average doctoral student comes away with $103k to $130k in student debt. Of course, as an average, some debt balances were much higher.

• Pay Right Away
• Sign up for Automatic Debit
• Pay More than Your Minimum Payment
• Use Your Tax Refund
• Seek Out Forgiveness and Repayment Options

In a parallel article by the same organization, forgiveness and repayment options may apply to the following:

• Teacher Loan Forgiveness
• Public Service Loan Forgiveness (PSLF)
• Income-Driven Repayment (IDR) Plan
• Military Service
• AmeriCorps

Of course, when possible, avoid debt altogether. According to finance expert, Dave Ramsey (who has an excellent blog on the topic), in an article written by noted authority and author, Anthony O’Neal, “58% of them [young professionals] said their student loan burden has kept them from achieving goals. Seventy-four percent of them said if they could go back, they wouldn’t take out those loans. Living in regret isn’t emotionally healthy for anyone.”

Therefore, a proactive question is “How do students avoid or minimize debt?” Edvisors offers the following approaches:

• Exhaust sources of free money, such as grants and scholarships, before turning to student loans.
• Save as much as possible before enrolling in college.
• Enroll at a less expensive college.
• Use a tuition installment plan instead of long-term loan debt.
• Students should budget before they borrow.
• Students should also figure out how they will repay the student loans before they borrow, as it is easier to reduce debt before it is incurred than afterward.
• Consider costs beyond tuition, which represent about half of the debt
• Students can work part-time during the term and full-time during the summer to earn money to pay for school.
• Pay the interest during the in-school and grace periods to keep the loan balance from growing.
• Graduate on-time.
• Keep student loan debt in sync with income.

A mindset that appears evident today is that debt is okay as earning a degree will result in greater job opportunities and earnings, from which debt can be paid. There is some truth to this as the higher the degree, the better the job (generally); however, like any business, there is a Return on Investment (ROI) to consider. How much does your education cost, and how much more will you earn as a result? Further, will the increased income, if any, be sufficient to pay off the loan? In how many years? Again, LendEDU analyzed this dynamic relative to the Debt-to-Income (DTI) Ratio across different degree majors and careers, including the starting median salary and projected monthly income, relative to the student debt incurred. By understanding the dynamics and interaction between debt and potential income, based on degree, students can make more informed and better decisions regarding their degree, based on fund availability and possible debt.

Finally, BankRate.com conducted a study that found 61% of millennials don’t own a home and nearly a quarter of them attribute student loan debt as the cause. To help combat this issue, BankRate provides mortgage assistance programs and the requirements for each as well as six financial steps to improve the chances of getting approved for a mortgage. Click here for BankRate’s guide “How to buy a house when you have student loan debt”.

In conclusion, approach education in wisdom and full recognition that your degree may or may not result in a better job or income, plus the stress and anxiety that having debt brings - and the limitations that come with it. Again, avoid debt if possible, but if already in debt, use these steps to pay off as soon as possible to move forward with life and dreams.