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7 surprising ways to minimize student debt

Figure out what your monthly student loan payments will be after graduation and strive to make sure they don't exceed 8 percent of the typical starting salary in your field of choice.
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Two out of three students attending four-year colleges rely on student loans, according to While students normally may not think about the debt burden they'll face until after they finish school, they can minimize the financial strain by taking some smart steps well before their debts come due.

Take a gap year
"Sometimes it benefits students to wait until they have a better sense of why they want to go to college and what they want to study," says Michele Kosboth, director of student financial planning for Lasell College in Newton, Mass.

The benefit of finding the right school and creating a career plan before you get there is twofold, Kosboth says. Students who have a clear idea of what they want to major in and what classes will be required are more likely to graduate on time. Students who attend a college that fits their academic and social needs are also less likely to transfer and lose credits moving from one school to another.

Pick a major
"Changing majors even just once can add on a year of school," says Heather Doe, associate director of marketing and communications for the Iowa College Student Aid Commission in Des Moines.

When choosing a major and a college, Doe says students should make sure the amount of debt they'll take on isn't disproportionately larger than the average starting salary in that major. To keep lenders at bay, Doe suggests figuring out what your monthly student loan payments will be after graduation and ensuring they don't exceed 8 percent of the typical starting salary in your field of choice.

Stay in school
If you've already put in a few years at a four-year institution, it's smarter to stay in school and keep taking on debt rather than dropping out. A study by the U.S. Census Bureau shows that full-time workers holding bachelor's degrees earn an average of $15,400 more per year than full-time workers with some college, but no degree. For workers holding associate degrees, the gap narrows to $14,000 per year. In both cases, a degree means substantially higher earnings prospects and therefore a higher likelihood you won't default on student loans.

Investigate jobs
Federal Stafford loans give students a six-month grace period between graduation and the time when they must start paying back their loans, reports the Department of Education, while private loans may not have any grace period. The bad news in both cases is that students may not have a job when the bills come due.

According to the Bureau of Labor Statistics, the average job search lasts more than nine months, meaning that you might get stuck with student loan debt you can't repay. Fortunately, students can take steps to reduce the job hunt time period and minimize the chance of defaulting on their loans.

"Many career placement offices offer free seminars for students on job searches and resume writing and job interviewing," says Pamela Rambo, founder of the education consulting firm, Rambo Research and Consulting, in Williamsburg, Va.

Rambo says students can also get a leg up on their competition by volunteering or interning while in college. A study by the National Association of Colleges and Employers reveals that this year companies expect to draw 40 percent of new college hires from internship and co-op programs.

Attend summer school
If you'd like a sweet 25 percent discount on college costs, hit the books this summer.

"If you can get your degree finished in three years by taking more courses than the normal, average 12 credits or taking summer courses, that will save you money," says Kosboth.

Most four-year institutions require students to complete 120 credit hours — approximately 15 credits per semester — to graduate with a bachelor's degree. Students who take just one extra course per year, either during summer school or on top of a regular course load, can graduate a full semester early, which translates to an average savings of more than $10,000, according to the National Center for Education Statistics.

Pay the interest
Taking a job or paid internship while in school can also help keep student loan interest in check, says Rambo. While students with unsubsidized Stafford loans aren't required to pay loan interest while they're in school, they'll save a bundle if they do. According to, students who borrow $27,000, the maximum Stafford loan allowance for those who graduate in four years, will finish college with nearly $2,300 in capitalized interest tacked onto their student loans — that is, if the undergrad Stafford loan interest rate remains at 3.4 percent, an optimistic assumption.

Pass the buck
"It's been proven in study after study that a student who has a financial stake takes (their education) more seriously," says Robert Mendenall, founder of The College Funding Center of South Carolina, a college planning firm in Columbia. "They go to class, they graduate on time. When the parents write a check, it's a little different."

Requiring students to max out their federal loan options before taking out private or Parent PLUS loans can save money, too. For the 2011-2012 school year, Stafford loans for dependent undergrads have a fixed interest rate of 3.4 percent , whereas PLUS loans have a fixed interest rate of 7.9 percent and private loan rates can soar well into double digits. Stafford loans also come with income-based repayment and loan forgiveness options that aren't available on PLUS loans. In certain circumstances, this means your student might not have to pay back all of those loans after all.