The Student Loan Dilemma

Prior to the Healthcare Reform law, private companies that offered student loans which were subsidized and guaranteed by the federal government. Under the Healthcare Reform Law the government now lends the money directly to students eliminating the need for private lenders. The money will go towards providing more grants to students. However, this has caused an increase in companies offering private student loans.

Private loans require a credit check and cannot be discharged in bankruptcy. Private loans offered through college have higher interest rates compared to federal student loans and accrue interest while students are in school. Since the Healthcare Reform, Sallie Mae which offers private loans now offers a Smart Option Student loan with an interest rate of 2.8% and allow students to lower their interest rates by paying on interest which still in school. Wells Fargo offers private loans with variable rates and student can reduce their interest rate three quarters of one percent if the student graduates.

The student loan default rate has increased to 7%. Many colleges are controlled by privately traded companies on the stock exchange and investors are always looking for ways to exploit low-income students. According to a report by the Education Trust titled “Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities”, private for-profit colleges take advantage of students by offering high interest loans.

According to the report, only 22% of students who enroll in a 4 year degree program graduate within 6 years. A U.S. Department of Education report states that Arizona has the highest rate of student loan defaults in the country. In contrast, the student loan default rate in Missouri is 5.8% which it achieves through grants to institutions and financial literacy programs. Grants are used to teach students financial literacy. Assistant Commissioner Leanne Cardwell, states that financial literacy outreach is critical to reducing default rates and student debt load.

Getting private student loans for college should be a last resort. Here are 8 ways reduce college tuition and student loan debt.

1. Apply for financial aid. Apply for at least 50-100 college scholarships and apply for the FAFSA January 1.

2. Plan for college costs early. If you will have to pay for college yourself get a part-time job as soon as you are old enough to work and put at least 50% of the money in a high interest savings account.

3. Ditch the high bill. It is nice to attend an Ivy League school but the tuition will cost you. Consider attending a less expensive school.

4. Work at school. Research getting a job which in school through the colleges’ work-study program.

5. Student loan forgiveness. Research student loan forgiveness programs before applying for a job after graduation to see which industries offer the best program for you. You may have to delay that 6 figure job until your student loan debt is paid down. Visit finaid.org for more information.

6. Apply for federal loan. Apply for federal student loans first which offer lower interest rates and multiple repayment programs.

7. Read the fine print. Read the fine print on student loan applications especially the interest rate, default penalties, repayment options, balloon payments, and prepayment options.

8. School decision. If feel strongly about attending the school of your choice with a high tuition, attend a school that offers a higher starting salary. CNBC ranked 16 schools that offer high starting salaries upon graduation. For more information visit cnbc.com/id/40703034.