Show Me How to avoid student-loan debt

Many students cannot pay for their college educations without taking out loans. In an effort to help students climb out of debt as quickly as possible, The Daily Lobo spoke with Brian Malone, director of UNM’s Financial Aid Office, to learn how students can best manage their loans.

Step 1
Start with a direct loan

Direct loans have lower interest rates than bank loans because direct loans are issued by the U.S. Department of Education. Subsidized loans are only available for undergraduate students and don’t accrue interest while students are in school. Unsubsidized loans accrue interest but are available to both undergraduate and graduate students.

Step 2
Pay off loans as soon as possible

Interest for unsubsidized loans begins adding up as soon as a student takes it out. Malone said that by paying off loans early, loan debt won’t pile up.

Step 3
Take out alternative loans only if absolutely necessary

Alternative loans are taken through banks and should be a student’s last resort, because private banks tend to have higher interest rates and fewer benefits than direct loans. Malone said alternative loans should be considered only if a student is academically ineligible for federal loans or if a student has taken out the maximum amount possible through other loans.
Avoid defaulting on loans

If a student stops making payments for a certain amount of time, the student will automatically default on the loan. The amount of time lenders give before a default depends on the terms of the loan. Malone said students who default will see their credit score go down and they may incur collection fees. Students who default won’t be eligible for any further federal financial aid.

Step 4
Take out only what you need

Just because students may be eligible for thousands of dollars in loans doesn’t mean they should take all that money out. Interest can build up quickly, and once school is over, all that money will have to be paid back.

Step 5
Stay on track with graduation

Graduating in four or five years will reduce the debt incurred while in school. Malone said that beginning your career sooner will allow you to pay back debt sooner.