Be a smart borrower

If you have to take out student loans to pay for college, be a smart borrower. Your goal should be to graduate with as little student loan debt as you can. You can borrow less by:

  • Applying for federal grants and work-study
  • Applying for scholarships, grants and work-study programs offered by the school you attend
  • Applying for scholarships that are available in your community. Don’t be picky about smaller scholarships: a $100 scholarship is $100 less you have to borrow and pay back.
  • Taking as many classes as you can each semester or quarter. Many schools charge the same tuition for 15 or 18 hours as they do for 12 hours. If that’s the case at your school and you can handle that load, you can finish your program in less time. Less time in school equals less money you have to borrow.
  • Not changing your major. Many times changing a major means that some of the classes you took for your old program won’t count toward your new major. That means it may take you longer to finish.
  • Borrowing only what you need. If your school’s financial aid package includes $5,000 in student loans but you can get by with $4,000, don’t take the entire $5,000.
  • Checking out which loans are best for you. In most cases, you’ll want to go with Federal Direct Loans instead of private loans. Unless you have excellent credit, your interest rate on private loans will be higher than the interest rate on Direct Loans.
  • Paying at least the interest on your loans while you’re in school. If you have unsubsidized Direct Loans, you can save hundreds, maybe even thousands, of dollars by paying the interest while you’re taking classes. Otherwise, the interest will be added to the principal (called capitalizing). That means when you start repaying your loans after you finish school, you’re be paying interest on the interest that accumulated before you finished.

You need to keep two important things in mind while you’re in school: Know how much you have borrowed, and know what the loan limits are for the type of loans you’re getting. How much you can borrow in Direct Loans will depend on your year in school and other factors.

Also, pay particular attention to the terms of what are called conversion scholarships/loans, such as the Federal TEACH Grant. TEACH Grants require you to teach full time for four years in a high-need field in an elementary or secondary school that serves low-income students. If you do that, you don’t have to repay the grant. If you don’t, however, the grant converts to a Direct Loan that you have to repay with interest.