5 Ways to Reduce Student-Loan Debt

In a recent column on how to keep student-loan debt under control, I made the point that we need to apply out-of-the-box, even radical ideas to tackle spiraling college costs and student-loan debt. Readers quickly sent me their feedback.

Be practical. Some comments were straightforward. One reader thought that the best advice in my column was that families need to realize the dangers of making a college choice based on emotion: “Going to a $45,000-a-year school to become a teacher is a bad idea if you have to borrow.”

Another reader offered tips to keep down the cost of college: “Apply for every scholarship you can. Work while you’re in school. Join the military. Get good grades in high school so you can take advantage of tuition assistance for academically superior students attending state colleges. It may require going to your second- or third-choice school, but living a life free of debt is worth it.”

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Limit borrowing. One reader would put more responsibility on lenders rather than borrowers by making private student loans dischargeable in bankruptcy. “As soon as lenders realize they might lose the principal on their loans after graduation, they will pull in their horns and make fewer loans, which will drastically reduce the amount of money borrowed and change the selection criteria students use to pick a college.”

Meanwhile, the National Association of Student Financial Aid Administrators sent me its own recommendations, which include letting institutions set loan limits for certain categories of borrowers and making income-based repayment the automatic default for all borrowers.

Let the market rule. Another reader, “Tom,” proposes to get tuition under control by severing financial aid from the college application process. As it stands now, he observes, a school gathers all your financial information and knows exactly how much you can afford to pay out of pocket. Tom compares this to walking onto a car lot where there are no prices on the cars. When you ask for a price, you’re told, “That depends. How much can you afford to pay each month?” Instead, says Tom, “let the free market determine the price of the school. Students know the price, they secure financial aid on their own, and the money goes to the student, who pays the school.”

Figure out the payoff. The market is also on the mind of another reader, who points out that what really matters is the percentage of students who are able to find jobs in the field in which they earn a degree and what their average salary is. “In business, we call it return on investment. If you want to borrow your first 20 years’ salary to get a degree in something that has no real prospects, you’ll be on a path to student-loan misery.”

In my column, I made the point that families have to figure out how student loans will fit into a postgraduate budget. I heard from Junior Achievement that JA, in partnership with PricewaterhouseCoopers, has developed “JA Build Your Future,” a new app that lets students plug in information about career choices, higher education costs and student loans. Students are given a “return on investment” score that indicates how difficult it would be to pay off student debt based on estimated future income. The free app is available on iTunes and Google Play for both phones and tablets.

Get the right skills. Finally, my 25-year-old son added his two cents. Peter is firmly convinced that young people his age can acquire the marketable skills they need to get a job, and pay off their loans, through online sources such as Khan Academy. (For other career advice, see How Students Can Improve Their Chances of Getting a Job).

On the same theme, I’ll let another reader have the last word: “Encourage students to choose not only a career they love but also one that will pay the bills.”