1 Amazingly Simple Way to Cut Student Loan Debt That No One Thought of – Until Now

Flickr / silly_little_man.

Think about this statement for a minute: Education can reduce student loan debt.

Though it might sound like a paradox – after all, isn't it the pursuit of education that has ignited the college debt crisis? – the Hoosier state university system has proved that educating students about loan debt can alter their behavior in a positive way.

Last year, the seven colleges making up the Indiana University system sent letters to students giving them a sneak peek at their post-graduate monthly loan payments. The missives were a wake-up call for many, who decided against taking out additional loans, according to Bloomberg. Overall, the university system saw an 11% decline in the amount of federal Stafford loan disbursements, which fell by about $31 million over the course of the academic year.

Financial literacy campaign
While it may seem fantastic that just viewing the future effects of current behavior would make such an impression, the outcome of this experiment should not be surprising. Many students have very little understanding of their personal student debt situation, and most American families feel helpless in the face of the escalating cost of higher education, but are not proactive in trying to avoid college debt.

Indiana seems determined to buck this trend. In addition to the debt summary letters, the school has launched two other initiatives in the fight against spiraling college debt. The "MoneySmarts" online financial literacy course is now a requirement of all incoming students, and the "Finish in Four" program gives financial incentives for upperclassmen to finish their degrees timely.

Empowerment is key
Can students be "taught" to avoid onerous student debt? The answer seems to be a resounding, "yes". The Bloomberg article noted that some students, upon seeing how much debt they were accumulating, came up with alternate plans to fund their college careers – by cutting expenses, dedicating more income from work toward college costs, or by investigating available scholarship opportunities.

Being aware of how much you are borrowing is huge, and Indiana has taken additional steps to highlight that issue. The university system has begun requiring its students to let the school know which loans they plan to take on, rather than the usual regimen of blindly filling out the federal Free Application for Federal Student Aid forms online. This change alone brought about an 8% decrease in loan disbursements in one year. 

If you already have student loans, get a handle on what they are and how much you owe by visiting the National Student Loan Data System. And, before you take out any more loans, research alternative methods to cover your college costs. Thoughtful consideration has worked for others, and it can work for you, too.

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  • Report this Comment On July 13, 2014, at 3:29 PM, RHO1953 wrote:

    I have another great solution: quit paying exorbitant salaries to college instructors and especially the tenured professors. There just aren't any impoverished college profs. Cruise past the staff parking lot at your little local community college. There are some VERY pricey automobiles parked in those lots, and they take their owners back home at night to some VERY exclusive homes. And that is just the little community colleges, the big schools pay even better. Forty years ago a college student could work his way through school with a summer job. These days, a full time job for the average worker won't begin to touch college tuition. Something is wrong with that scenario.

  • Report this Comment On July 13, 2014, at 8:10 PM, MissDisplaced wrote:

    The only thing I can see that cuts student loan debt is having a good paying job!

    Crappy pay means no repay.

  • Report this Comment On July 13, 2014, at 9:31 PM, arkbiz wrote:

    Honestly, how can people be college material if they can't count? The answer, of course, is that they have dumbed down (US) colleges. The median American grad ranks only 12th of 16 for developed-country numeracy.

    And more than half of students have a negative ROI from college attendance because they either drop out or take jobs that don't require college.

    The real answer is to cease government loans and guarantee of loans. Some schemes don't even look at credit ratings! Simply make loans subject to regular market forces.

    In real life, lots of kids get left behind. They shouldn't have to pay for the privilege.

  • Report this Comment On July 13, 2014, at 10:33 PM, Bill173 wrote:

    For government-backed loans, apply 25% of income to debt repayment, until debt is repaid.

  • Report this Comment On July 14, 2014, at 9:22 AM, tdizz wrote:

    If you left this up to market forces arkbiz the interest rate would be 20% and no one could afford college.

    You must have an educated workforce to grow this economy.

    Maybe we should charge a higher interest rate for those degrees that do not pay as much which would possibly push students into areas of study that have better paying jobs after graduation.

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Amanda Alix

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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