Everyone can agree, college is expensive. There’s no sugarcoating that; however, there are many resources and tools available that can help reduce the price tag. Whether it’s for you or your kids, paying for education, while usually a great investment in yourself, is a costly undertaking and that can saddle you with steep payments and student loan debt for years to come.
There are two approaches to mitigating the burden of higher education costs: Saving now and taking out less in student loans or if you have to take out loans, paying them back more efficiently when the time comes. Here are 5 tools to help you prepare for these future expenses or help you manage existing debt.
1. Loan Refinancing
Loan Refinancing is when you replace your current loan with another one that has more favorable terms, such as a lower interest rates or the ability to pay at a faster rate.
When you refinance your loan, you are working with a lender to swap out an old loan for a new and better one. Whether you have federal or private loans, you can use this option to pay reduced monthly payments, lower interest rates, and even shorter repayment terms. Also, if you don’t like the loan terms you can refinance it every so often.
You need to have a solid credit score and a consistent stream of income to qualify for this method. If you find this is the best choice for you, NerdWallet and Credible have teamed up to curate a list of lenders that will provide the best refinancing options.
2. Loan Consolidation is when you combine all of your debts into one, and pay a single monthly payment.
Loan consolidation can sound like a hassle and an intimidating resource; after all, you’re taking multiple loans and combining them into one large loan. That’s not necessarily accurate. When you consolidate your loans, you are actually making it easier to save money and even pay back your debt at a faster rate. Similar to loan refinancing, you can pay your debt down with the following methods:
- A single monthly payment.
- An alternate and more manageable repayment plan.
- A reduced interest rate on eligible loans (i.e. PLUS Loans).
- A grace period that will restart for loan terms, deferments, and forbearances.
While most loans are eligible for government-backed consolidation, privately funded loans are not. The lender and reapyment terms can fluctuate while the consolidation process is still happening. Keep in mind if you go with this option, you can lose your original loan benefits. If this option piques your interest and you want to learn more, then visit Debt.org and find out everything you need to know about debt consolidation.
3. 529 Plans
Named after the section they represent within the federal tax code, these state investment plans are exempt from federal taxes. The purpose of this plan is to give individuals 18 and older the opportunity to put aside money for the designated beneficiary’s higher education. 529 Plans are popular with parents or relatives looking to easily save for a child’s future education costs. Plus, since there are no age limits, you can open a 529 plan to fund your own college education too.
Each state’s plan varies, but generally, a 529 plan has the following characteristics:
- Earnings grow tax-free and will not be taxed if they are used for authorized educational purchases.
- Certain states can give full or partial tax credits or deductions for contributing to a 529.
- Most contribution limits range between $235,000 and $500,000.
4. Prepaid College Tuition Plans
These are state run plans that help pay for future college tuition at today’s costs. They are available for private and state universities, and depending on the package you choose, you may be able to pay for your child’s entire college career. While prepaid college plans are similar to 529 plans because they allow you to save and invest money specifically towards your child’s education, you don’t run the risk of losing any money either.
Only a handful of states still offer a prepaid college plan, so do your research and use Saving for College’s College Cost Calculator to determine if a prepaid college plan will help you afford college “tomorrow.”
This free program, created by Sallie Mae, gives you up to five percent cash back (you read that right, cash back, not points!) to help families save for college. They have helped millions of participants earn more than $9 million in cash back on everyday purcahses.
The program is simple to understand and use. Open a college savings plan account, earn cash back on everyday items and funnel those earnings into your account. When you’re ready to use your money, link your funds directly to an eligible loan or receive a check.
You can even build your credit score while earning cash back by using their Upromise MasterCard®. You should remember to not use your credit card as a crutch. However, the most important feature of this program is that your savings earn interest! Who knew that spending money could help you save thousands?
Hopefully, these five debt and saving resources will give you the confidence to revisit repayment options as well as prepare for your family’s future. Take the time to find the best alternatives that work for you, and don’t be afraid to think outside the box to search for creative debt solutions and savings options.
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