Your Student Loan Debt

Are you worried about the skyrocketing costs of college and financing your education with student loans? If so, you're not alone. Two out of three college graduates in America leave school with student loan debt-and chances are you're one of them, or you soon will be. According to the College Board, the total annual cost of attending a public, four year college or university in the 2006-07 school year - including tuition, fees, room and board charges - was $12,796, up 35% over the past five years. For private schools, the annual price tag to get a college education in 2006-07 was a whopping $30,367. As a result, the typical graduate of a four-year college or university owes nearly $20,000 in student loans, more than double the median student loan debt of $9,250 just a decade ago.

Fortunately, if you're a student, there are some things you can do to help yourself out of a student loan dilemma, as well as assist future classes of college graduates who, if things remain the same, will have it even worse than you do.
Here are seven golden rules for student borrowers.

Rule #1: Don't over-estimate your starting income

One of the biggest wake-up calls for students and recent college graduates is once you get out of school and bam! You're hit with a host of costs - not to mention student loans - but your salary might be far below what you expected. What's the solution? Be realistic about your earnings outlook. Don't assume you're going to pull down a six-figure income as soon as you get that degree. Even if you do work in a field where six-figure salaries are the norm, chances are you have to work yourself up to that level. It won't happen automatically. Take a look, for example, at the most lucrative degrees for college graduates who left school in 2006. The numbers are solid, but they're not blockbuster figures, especially if you've got $20,000 or more worth of college debt with which to contend.

Rule #2: Pick Your Poison

If you know your financial aid package won't cover all your school costs and living expenses, be smart about what sources of funding you select to make up the gap. Don't rely on high-interest rate credit cards. Be cautious about taking out private loans because unlike federal loans, they have variable interest rates, are usually costlier loans, contain no loan forgiveness or cancellation features, and are unsubsidized (This means that while you're in school, you have to pay the interest on your loans immediately. With subsidized federal loans, the government pays the interest on your debt while you're enrolled at least half-time). Whether you choose a federal or private loan, make sure you shop around and get the best possible deal from your lender. Seek out lenders that offer few or no loan origination fees, lower interest rates for automatic deductions, or better rates for making a specific number of payments on time.

Many lenders will cut your interest rate after you've made 48 timely payments. Some will even slash your student loan interest rate after you've made 10 on time payments. Lender My Rich Uncle discounts federal loan rates by up to 1.75% right upon repayment. This means you get a lower interest rate as soon as you start repaying your loans, not years later. The bottom line is: be a smart consumer when you have to borrow money for college.

Rule #3: Be Wise About Consolidating

Make sure you don't consolidate in ways that could hurt you in the long run. For instance, don't consolidate private and federal loans together. If you consolidate Perkins loans, they have better forgiveness benefits for people who go into teaching, and you can lose those benefits if you consolidate them.

Rule #4: Demand Accountability and Rational Behavior From Schools

Recently, the New York Times reported on a trend about how many schools were artificially raising the price of tuition to help their college rankings and to appear more attractive to students and families. The thinking among these schools was: if we cost more, prospective students and their families will automatically assume we're "better" schools. Unfortunately, this crazy logic has worked. But one of the reasons colleges get away with charging sky-high tuition rates is that they know many parents will do whatever it takes, and make sacrifices - even unwise ones - just to help their children obtain a college degree. Don't fall for these kinds of tactics. Ask your school officials if what they charge really covers the cost of education or if that money's going elsewhere.

Rule #5: Voice Your Concerns Publicly

Make your thoughts about the student loan crisis known to others, especially your local representatives and members of Congress. Lawmakers are listening and know that student loans are a huge problem. That's why they voted in 2007 to slash interest rates on federal Stafford loans from 6.8% to 3.4% over the course of five years. Keep the focus on this issue.

Let lawmakers know what it's like to be forced to take on student loans just to have a shot at a better quality of life. Urge politicians to increase grants to students, not loans. You can get in touch with your elected officials at both the state and the federal level. To find out the names of your elected officials, visit www.congress.org.

Rule #6: Form or join student advocacy groups

Get help from organizations like the Project on Student Debt (www.projectonstudentdebt.org), the United States Student Association (www.usstudents.org), an advocacy group for college students, as well as the local student Public Interest Research Group (www.uspirg.org) in your area. These can all be powerful resources from which you can mobilize and join the fight against enormous student loan debt.

Rule #7: Start your own business - or at least get a job!

Let's face it: most students have to work to help foot their college bills. But why work for someone else when you can be your own boss, and make lots of money in the process? A great book on this topic is "Campus CEO" by Randal Pinkett, winner of season four of "The Apprentice." It describes how today's college students don't have to wait to have a career. You can launch a business now - even while you're in school - helping you earn money and avoid educational debt. If entrepreneurship is out of the question, at least consider a part-time job to reduce your need for college loans.

By decreasing your dependency on loans, and being smart about managing the educational debt you may already have, you'll start off your post-college life on solid financial ground. By the way, I know about this topic from first-hand experience. After undergraduate and graduate school, I had nearly $40,000 in student loans. Fortunately, I've managed to pay them down and not have student loans wreak havoc on my finances.

If you'd like more advice on this topic, sign up for my free personal finance newsletter at www.themoneycoach.net or pick up a copy of my book "Zero Debt for College Grads: From Student Loans to Financial Freedom." It contains everything students, graduates and parents need to know about paying off student loans, eliminating credit card debt, and juggling day-to-day bills.