Best Student Loan Alternatives

Being a college student may require you to figure out ways to pay for school without taking on a huge amount of debt. Perhaps it means working part-time or longer hours in the summer. It may entail researching for scholarships and grants. Some students use the GI Bill to cover the costs after deployment.

It's a challenge to cover your tuition and living expenses when you’re a college student on a budget. According to the Education Data Initiative, the average public university loan student borrowed $31,410 to complete their degree.

Using federal loans to pay for a university education may seem like the only answer, but those loans usually have to be repaid. Plus, many people (including international students and people with DACA status) aren’t eligible to fill out the FAFSA.

If you’re trying to find alternatives to student loans, these are the best places to start.

Grants

Grants are a form of financial aid that doesn’t need to be repaid. One of the most famous grants is the Pell Grant which is a grant issued to people on the basis of financial need. 

There are several Federal Grants available for qualified individuals who complete the FAFSA. You might also qualify for one of the myriad grants designed to help different groups through college.

There are also many state-specific grants. You can find our list by selecting your state here: Financial Aid Programs By State.

Scholarships

Like grants, scholarships don’t need to be repaid. Many schools offer both merit and need-based scholarships. But you don’t have to limit your search for scholarships to those offered by your school. 

Spending a few hours per week researching and applying for scholarships can yield hundreds or thousands of dollars to help you pay for school.

And don’t worry if you’re not an all-star athlete or once-in-a-generation genius. You can find scholarships for everything from civic engagement to having high bowling scores.

It’s valuable to view applying for scholarships as a part time job. An applicant who spends 20 hours applying for scholarships and wins $1000 in scholarships has an effective rate of $50 per hour. Scholarships for smaller amounts, and those that require more work offer the greatest chance for return on invested time since these scholarships have smaller applicant pools. Students as young as 13 up to those entering their senior year of college can win new scholarships to offset university expenses.

Related: Best Scholarship Search Websites

Work During Your Degree

Even before Covid-19 hit, many universities catered to working adults who needed to earn their degree while working a full-time job. Some of these online programs, such as the one at Western Governors University, are specifically designed to be both affordable and flexible. 

In a survey we conducted at The College Investor, 75% of students would still choose to work, even if they didn’t have to. Work seems to be an integral part of college life. So if you can hold down a full-time job, and live frugally, you can minimize debt during your degree and escape debt faster once you graduate. 

There are also official "work study" jobs where you can earn financial aid as a result of your working. Check out our full guide to work study.

Income Share Agreements

Income Share Agreements (ISA) are often used as a way to fund coding boot camps or other non-accredited job programs. Under an ISA, you’ll pay a portion of your income to the institution for a limited period of time. Once that time is up, your “loan” is considered complete. 

The ISA is a great alternative to a private loan because there is a cap on how much it will affect your cash flow. Unfortunately, you may end up overpaying for your education because the share of your income remains stable no matter how much you earn.

Note, these should only be used in lieu of private student loans. Federal student loans are still a better option compared to income share agreements.

Employer Paid Tuition

Many large employers will cover some or all of your college or graduate school costs if you continue to work for the organization during your education. 

Many employer sponsorship programs require you to keep a certain GPA or to pay for your classes and submit a reimbursement request. 

Make sure that you understand the full program before you enroll in classes. You don’t want to be left covering thousands in tuition costs that you weren’t expecting.

Savings And 529 Plan

Saving several thousand dollars in high school can help you cover quite a few expenses during college. Having money in the bank may allow you to cover transportation costs so you can take on a college internship. It can also help you avoid credit card debt when your textbook costs $300 and isn’t available online.

Here are the best online savings for students.

On top of your own savings, your parents or grandparents may have set aside some money for you in a 529 plan or another savings account. 

Be Careful With Private Loans

Our first choice for student loans is Federal Student Loans. Federal Student Loans offer income-driven repayment plans and in many cases pathways to loan cancellation or loan forgiveness. Of course, you’ll want to minimize your loans by living frugally and hustling when you can.

If you aren’t eligible for Federal Student Loans, carefully consider private loans. The interest rates on private loans are often quite high (in excess of 10%), and they usually don’t have income-driven repayment plans. That means your post-college payments can be very high, even if your income is modest. 

Make sure to consider how much you realistically expect to earn after college before you take on these loans. If money will be too tight, you may want to delay college to earn and save more money.

Getting your degree is important, and it can unlock higher-paying jobs and better professional opportunities. But a degree isn’t something to pursue at all costs. These higher-interest debts aren’t worth taking on.

Credit Cards

Credit cards are an incredible financial tool, and even as a college student, you may qualify for a credit card with a limit of several thousand dollars. You might be tempted to use that credit line to pay for living expenses, books, and other non-tuition-related expenses. But people who are paying interest on their credit cards, pay an average of 20.4% APR annually. 

It’s easy to get sucked into using credit cards in college only to find yourself stuck in a lot of debt. Avoid using credit cards, and if you do, try to pay it off in full to avoid high interest rates.

Title Loans And Payday Loans

A title loan or a payday loan will never get you thousands of dollars to cover your tuition. But they may cover an inexpensive computer or a few books until you get paid. The trouble with these short-term loans is the obscenely high-interest rates. They usually carry rates in excess of 100% annually. 

With the interest rates and fees, most people can't repay the loan in full after two weeks. People are stuck renewing their loan month after month. Even working overtime may not be enough to pay off the loan in full.

Avoid title and payday loans during your college years. It may be better to work more and slow down earning your degree than to get trapped in these high-cost loans. 

Take Steps To Minimize Your Student Loan Debt

In some cases, a debt-free degree could be a reality. Choosing a low-cost program, earning money during school, and using your own and your parents' savings could allow you to avoid debt altogether. 

But in other cases, avoiding student loan debt completely isn’t possible. That doesn’t mean you should throw up your hands and sign up for the maximum loans. 

Combining some of these alternatives to student loans, living frugally, and choosing lower-cost programs can help you minimize student loan debt. 

What steps will you take to minimize your student loans today so you can enjoy debt freedom sooner?