06/20/2012 05:25 pm ET Updated Aug 20, 2012

Don't Let College Break the Bank: Tips to Save on Student Loans


Written by Catherine Hawley, SaveUp's contributing Certified Financial Planner

Now is the time of year for graduations, and I've been thinking about what people can do to make healthy financial decisions for college. I haven't been the only one thinking about the cost of higher education as it's been a hot topic in the news lately. Here are the headlines that caught my attention and may have a big effect on your finances:

Trying to Shed Student Debt: There is debate in Congress over whether to change current law so that you can rid yourself of student debt in bankruptcy. This conversation is fueled by the fact that recently, student debt has risen but the earning power of a college degree has declined.

Student Loan Rates May Change: If Congress doesn't agree to extend the current interest rate (3.4 percent) it will double (becoming 6.4 percent) on July 1, 2012. This would affect federally funded Stafford Loans applied for next year and could impact nearly half of all college students who need student loans.

Student Debt Surpasses Consumer Debt: Earlier this year the amount of student debt rose to over $1 trillion according to the Consumer Financial Protection Bureau. In fact, over the past decade student debt more than tripled according to the Federal Reserve Bank of New York quarterly household debt report. That's a 275 percent increase in just 10 years! This has ramifications for the choices we make, the careers we choose, and our ability to save for retirement.

The current climate can seem daunting. However, there are still decisions you can make to improve your financial situation. Here are a few things that come to mind.

If You or Your Child Is Pre-college...

1. Save early and often. If you start saving 15 years before your child goes to college, you can save just $75 a month growing at 6 percent and it will total $21,811! If you waited and started saving 5 years before your kid goes to college, you would have to save $303 per month (at 6 percent) to grow to the same $21,811.

2. Consider two years at a community college to keep costs at a minimum. This might include living at home to keep expenses as low as possible. Although this is a cost saving tip, it doesn't come without a potential downside. Be aware that people who begin college with the objective of graduating from a four year school are more likely to accomplish that goal if they start at a four year school vs. a community college.

3. To supplement loans, consider other sources of funding such as work-study programs or on-campus jobs. Applying for grants and scholarships can also help.

Here are resource sites that can provide more information: and

If You Already Have Student Loans...

1. Pay on time. This affects your credit score positively, but if you're late, it will have the opposite effect. Unfortunately, more of us have fallen behind. A decade ago long-term delinquency rates were 6.13 percent whereas now they are 8.69 percent. Use the debt to your advantage to build credit so that you have options when the time comes to finance other financial goals such as buying a house.

2. If you have multiple loans, prioritize which you should pay off first. If possible, consolidate your loans to get a lower interest rate. If you are debt averse or have high interest rates, consider making payments that are larger than required in order to reduce the principal amount.

3. If you have a low rate locked in, consider keeping this "good" debt and paying it down over time through cash flow. This is assuming you are saving and investing an equal or greater amount of money in a retirement or brokerage account and feel comfortable holding this debt.

Regardless of what happens with legislation you can take action to improve your financial situation!

I hope these topics help you work on your financial plan for college or stay diligent about paying off those student loans. For more savings tips about student loans and personal finance, check out