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

Seeing the effects of student loan debt ahead of time can really make a difference

Amanda Alix
Amanda Alix
Jul 13, 2014 at 2:29PM

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.