There are plenty of articles that will tell you how to pay off your debt after you graduate, but it’s even better to have less debt. It doesn’t seem like you can do much of anything to improve your debt situation while you’re in school, i.e. earning more debt, but there you’re wrong. There are lots of strategies to decrease the loans you take out, and thus decrease your debt burden when you graduate. This also decreases the interest that accrues while you’re in school and paying off debts and reduces origination fees – so it saves you money on top of money. Here are the strategies I used to reduce debt while still in school.
I didn’t take out the max loans.
The max loans I could take for three years of loan school was about $180k, but I ended up with about $92k (and $20k of credit card debt). The problem with taking out the max loans is that schools overestimate the amount of loans they can give you because they don’t want you to run out of money. The problem with taking those extra “just in case” loans is that most people will use up the money they have just to use it up. You already have it so you might as well use it. And that’s how you get into more debt than you need to.
A better option is to figure out a realistic but frugal budget. You can add in a little extra for wiggle room but don’t take the max loans just because they’re the max. You can do better than that. Your future self will thank you for fewer loans that you will need to pay back.
I went to a cheaper school.
Not everyone has this choice, but it should be a consideration if you’re undecided between schools with differing tuitions. With in-state tuition, I saved about $5,000/year on tuition and likely $10,000/year in living costs compared with living in a big city. It’s not just that the cost of living was lower but it was much harder to spend a lot of money in a small college town than in, say, New York City. That’s $45,000 saved without doing anything at all. Plus, in law school, you spend a lot of your time studying – you don’t need the added distractions of a big city.
I shopped around for insurance.
I checked my checking account to make sure there would be enough money at the end of the semester. I read the fine print and bought private health insurance, rather than the school insurance. (This was pre-Obamacare so your mileage may vary). This move saved me $2000/year and gave me better coverage.
I treated loan money like real money.
Many make the mistake of treating loan money like Monopoly money. I treated it like real money and lived like a student. I did not increase my lifestyle and saved money where I could. I carpooled. Of course I bought used books. Used books are slightly inconvenient to use used books, but it’s the easiest way to save hundreds of dollars a semester as a law school student.
I brought my lunch and made bulk dinners on Sunday. If I went shopping, it was at Goodwill. I didn’t go on fancy vacations on borrowed money. This doesn’t mean that I didn’t have occasional splurges at nice restaurants. I preferred, however, to have a nice, memorable dinner with my boyfriend over numerous forgettable meals at the school cafeteria. Over the course of three years, these little tricks saved me thousands of dollars.
I made money in school.
It’s hard to work while you’re in law school your first year, but students tend to have more time 2L and 3L years. I worked at the library from my 2L to 3L years. During the summer, I took a better-paying side job. I made quite a low salary but the work was minimal at all the jobs. All the jobs also allowed me time to study (the benefits of living in a college town). Additionally, I met people and the few hundred bucks a month paid for my rent.
Having the additional money meant that I could avoid taking out new loans, which could save hundreds on origination fees and interest. Additionally, any income earned makes you eligible for the earned income tax credit when you file your taxes. If I had been a bit savvier, and had more money, I could have put some money into a Roth IRA and taken advantage of the market climb. You live and you learn though. I was happy to have the thousands extra from these side jobs and get the Earned Income Tax Credit.
I maxed out several 0% cards.
It’s anathema in the personal finance community to use credit cards. As a warning, if you cannot be trusted with credit cards, do not follow this tip. You could get into a lot of trouble.
But, I’m quite good with credit cards.Because I had excellent credit, I was able to get 0% interest on cards for 12-18 month periods with credit limits totaling $20,000. The cards had staggered end dates that were months after my starting date. That way they wouldn’t come due while I was still in law school.
It was nice to be able to float my expenses for a while. This tip didn’t actually save a ton of money but it helped keep my peace of mind and liquidity. I put my last two years of spending on credit. I made sure that I was ready to pay them off once I had a job. But I knew that I would get a job eventually and I didn’t run up the balances.
Paid tuition with money instead of loans.
I took four years off between college and law school, where I saved up money for law school on an entry level salary. The money I saved I put toward tuition and living expenses. As stated above, I didn’t take out the max loans but only what I needed to get by. Additionally, because I was able to pay for my living expenses in cash, I primarily took out federal loans. Thus, if push came to shove and I got a job that needed to rely on loan forgiveness, most of my loans could be forgiven under the plan. I wouldn’t have pesky private loans that I would still have to pay.
How I Saved Tens of Thousands While In Law School
Basically, I lived like a student, and I didn’t regret it. Though I graduated with over $90,000 in law school debt, and $20,000 and credit card debt (on 0% credit cards) I know it could have been much worse (I think the max was $180,000 for 3 years, not counting if you took additional private loans).
Part of the reason that I was so careful with my money is that I entered law school in 2009. Even though I went to a top school, we were told not to have high expectations for graduation. And I took to heart the possibility of having difficulty finding a job.
I think even keeping my law school loans below the six figure level put me ahead mentally (and of course, financially). I don’t regret any of it. The strategies I used in law school to save money made it exponentially easier for me to pay of my loans quickly and then, quickly start building my net worth.
Do you have any strategies for saving money in graduate school?