Six Tips for Paying for College without Student Loans

This summer, after attending college orientation for our son, Donovan, it hit my wife and me that we will have three children in college this fall.

Thankfully, even with three kids in college, we have managed to navigate college waters without getting buried in debt. Sitting in that orientation, I realized many other parents and students would not be as fortunate.

How does college debt start?

Most parents and students do not receive final financial aid information until a few short weeks before school starts. By this time, they have already told family and friends where their little angel will be going to college and posted pictures online in their new college tee. After the financials unfold, staying with that decision can mean a scramble to make it happen by any means. When this occurs, the debt train can roll out of the station with no stopping in sight.

Refund checks and unsubsidized loans

A student recently reached out and asked my advice on how to best spend his $3,000 student loan refund check. He was shocked when I told him to pay it back immediately.

Many students receive and see student loan “refund” checks as free money, when they are actually helping them dig a deep hole of debt. I explained to this student that if he accepted this “free money” over four years, he would finish with $24,000 in additional debt after graduation. It would actually be even more, since some of his loans were unsubsidized, meaning interest begins to accrue immediately rather than after graduation.

Although the college administrators at our recent orientation cautioned students not to take out more debt than they needed, it was presumed that parents and students would fund their education through student loans.

Student loans certainly do not have to be the case. There are many options other than going into debt for college. Here are a few tips.

Six tips to help you and your child be financially stable after college

1. Begin saving for college today.

Do not panic if your child is getting close to college.

• Just start saving today and do the best you can.
• Look into a college savings plan and invest in mutual funds that are allocated age appropriately.

2. Do college planning and selection early.

• Start the college search no later than junior year of high school.
• Visit schools and try to narrow the choices to four or five. Apply to each of them as early as possible during senior year.
• Help your student focus on getting good grades and preparing for college entry exams.

3. Create a budget with your student.

• Be clear about what you can and cannot contribute to help fund your child’s college education.
• Be realistic.
• Caution students to avoid credit cards altogether. They will have plenty of opportunities to build credit later.

4. Do not feel pressured to fund the whole thing.

• Give your child some responsibility. It is important that students have some skin in the game.
• Require them to fund part of their education through working and scholarships.
• Have them save money they received as graduation gifts for their college education.

5. Minimize the amount of student loans.

I meet with a lot of parents who are struggling to repay their own student loans while stressing over taking out loans for their child’s education. I do not want this to be your story.

• Consider ways to reduce college cost. Is attending a state school a better option?
• Can they take classes at a local junior college and transfer later to a four-year college, or stay at home while attending a local college?
• Decline all unsubsidized student loans and private loans, and do not accept other student loans blindly either. If you must accept student loans, limit them to subsidized loans only.
• Set a goal to complete college with a degree in hand and minimal loans, and think creatively about college funding. What can your student sell or do to raise additional money?

6. Do not sacrifice your retirement savings.

This is hard for most of us parents, but our children will have more sources of money for college than we will have for our golden years.

• Saving for your own retirement is more important than saving for college.
• There are no scholarships or grants for retirement.

Like his older brother, Donovan will stay at home and commute to school. He applied and received a few scholarships that cover all but about $500, plus books. To cover those expenses and his living expenses (all adult children living in our home are required to pay their own living expenses), he will continue to work a part-time job.

I hope these tips will help you and your child have a stress-free college and post-college experience.