College can be a double-edge sword. It provides important education and opens up opportunities, but also can cost a small fortune. For many of us, it is easy to graduate from college with tens of thousands of dollars in student loan debt.
However, it is possible to reduce your student loan debt while you are still in college so that your loans are more manageable.
Here are a few ways to save money on student loan interest and reduce your overall debt.
1. Minimize Student Loans Upfront
The first step in reducing your student loans is to avoid it as much as possible while you are in college. By taking steps to minimize your loans early, you will have less debt when you graduate, and your money can be put towards other financial goals.
When are first applying to college, look for scholarships and grants that you can apply for to reduce costs. While a full-ride scholarship is the ultimate dream, they are usually only given out to a handful of students. Be sure to also look for the smaller scholarships that you are more likely to be able to win.
Churches and local organizations often offer smaller $500 or $1,000 scholarships that you can earn by writing a heartfelt essay. Even though these scholarships may not sound like a lot, they can really add up later on when you are trying to pay back your loans.
My favorite way to cut student loans is to work as a Resident Assistant, or RA. If you are living on campus, this is a great option to get subsidized housing and can save up to $10,000 per year in living expenses. Some RA programs also provide a small stipend in addition to free or reduced housing costs. That is a huge win if you can avoid paying for housing to 2 or 3 years and get some additional cash on the side.
Other options for reducing your student loans initially can include buying used textbooks at a lower cost. Look for cheaper alternatives for food, housing, and extra-curricular activities. By making a conscious decision to try to save money, you will have more in your pocket by the time you graduate.
2. Create an Asset that will Generate Passive Income
Passive income is anything that will earn money without having to spend your time and effort every time you want a paycheck. Once you build a passive income asset, it should continue to make you money with minimal extra effort. Books, eBooks, and training courses are all good examples of passive income streams.
While you are in college, look to build passive income so that you have extra cash to pay off your loans. Tutoring is a good way to make money, but it is not truly passive since you have to spend your time working with other students. Instead, use your knowledge to help others by creating a study guide that you can sell.
You can put together a study document with key points for a specific class to help students better understand the material. You can also create videos narrating the key points and talking through how to solve problems from the class. Essentially, look to automate tutoring so that you do not have to spend extra hours working to get paid.
Of course, this same concept applies outside of just tutoring other college students. If you are not at the top of your class, you probably have a few other skills that you can turn into an eBook or online course. Find a niche that other people would like to learn about and then create an asset that you can sell for extra income.
3. Start Paying Off Your Student Loans Early
Most federal direct student loans allow you to defer your payments until six months after you graduate. This can be helpful for students that do not have a full-time income, but interest starts to accrue from the day you take out your loan.
To save money on your student loans long-term, start paying them off as soon as you can. Try to make payments on your loans as early as your freshman year, even if they are small. Since your income is probably limited as a student, aim to make payments that cover the cost of interest. This will keep your loans from growing at a faster rate once you do get a full-time job.
If at all possible, start to round up your student loan payments as much as you can while still in school. Use any money you receive from passive income sources or from jobs you hold while in college. Even if it is only a few dollars per month extra, it will help to save money on interest over the long term.
There are ways to reduce student loan debt while still in school so that you can save money for the rest of your life. Interest payments can quickly swell your debt and make it harder to pay off quickly. Get a jump on your student loans early by minimizing your debt upfront and using extra income to pay off your loans early.
About the Author:
Daniel Joseph is the founder of CoupleWealth.com, a blog focused on helping couples and young adults increase their financial stability. He and his wife paid off $88,000 in student loans, bought a house, and grew their net worth to over $500,000 by the time they were 32.