Your education is an investment in your future. The time you spend in college will increase your earnings as time passes.
One of the keys to an affordable education and a more fulfilling life is making good decisions even before you get to campus. Use these strategies to help you avoid borrowing or to reduce the amount you borrow.
Strategies to start using before you come to IU
There are a lot of steps you can take to make going to college easier on your wallet. Get a running start with these strategies as soon as you apply to IU.
Be sure to file a Free Application for Federal Student Aid (FAFSA) as soon as possible after you apply to IU. You may be able to take advantage of need-based grants and other gifts, which will reduce or eliminate your need to take out student loans.
Make sure you pay close attention to the FAFSA deadlines—the difference they can make to your aid is significant.
Start with the Office of Scholarships and the IU Foundation, but don’t forget to look for scholarships in your hometown. Are there any civic or service organizations, private foundations, or churches that offer scholarships you may qualify for? Are you eligible for a military scholarship? Here are a few ideas to get you started:
The Office of Scholarships also maintains a list of resources that can help you find other non-IU scholarships.
Federal loans tend to have lower interest rates and better payment plans. Plus you don’t have to start paying them back until after you graduate.
Does your FAFSA show that you have financial need? If so, you may be eligible for a Federal Direct Subsidized Loan. That means you can take out a federal loan without being charged interest until six months after you graduate or after you drop below half-time enrollment. So if you borrow $2,000 now, you’ll owe only that $2,000 upon graduation. But once that six-month period passes, interest will start accruing.
If you absolutely must borrow money, don’t borrow more than you need for any given academic period. The more you borrow, the more you have to pay back—and the more interest you’ll pay. Even if you’re offered a large loan, you don’t have to accept the full amount. And you should use your loan only for essential student expenses—those you won’t mind still paying for ten years down the road. (In other words, don’t use your loans to pay for lifestyle choices such as vacations, dinners out, or new clothes.)
See it in action
Undergraduate student Lana decided to take out a Federal Direct Subsidized Loan with a 4.29 percent interest rate. Her plan was to pay about $57 a month after graduation. When she ran the numbers to figure out how much to borrow, here’s what she found:
If Lana borrowed $5,500, she would pay $1,274 in interest over 10 years, for a total repayment cost of $6,774.
If Lana borrowed $3,000, she would pay only $339 in interest over 5 years, for a total repayment cost of $3,339.
By borrowing $2,500 less, Lana will save $935 in interest and pay off her loan in half the time without increasing her planned monthly payment.
Pay your bills in full and on time to avoid fees and charges, and to start building your credit history. And before you buy something you don’t really need, consider whether you have the funds for it. It’s better to do without than to get into financial hot water.
Using cash will keep you from overspending, because when it’s gone, it’s gone. It’s good to have a credit card in case of emergency, but avoid using it unless it’s absolutely necessary.
Where you choose to live really can make a significant difference in your finances. Residence halls are classified as economy, standard, or enhanced, and costs vary among the choices. Cooperative housing, where you receive a reduced housing rate in exchange for light custodial work, is the least expensive option. Co-op housing is popular both for its low cost and the sense of community it fosters, so the earlier you sign up for housing the more likely you are to have this option. You also have the option of living in an unfurnished apartment.
You’ll spend most of your time on campus, so opt for “safe and comfortable” over “luxurious and expensive.” And no matter how much you like and trust them, always have a written agreement with your roommates about how you’ll split expenses such as rent and utilities.
As a first-year student, your parking options on campus are limited. You’re unlikely to be able to get a campus housing permit, so chances are you’ll have to park your car in the student lots at the stadium north of 17th Street. This is most likely far from your classes and your residence hall, and requires you to move your car elsewhere on every game day. Additionally, your friends without cars may depend on you to take them on errands or loan them your car, which will increase your gas and parking costs.
Strategies you can use as an IU student
Once you’re an IU student, the opportunities to save money don’t end. Follow these additional strategies to make sure you’re getting the most bang for your buck.
Be sure to file a FAFSA before April 15 to be considered for financial aid for the following academic year. You can file as early as October 1.
Incoming freshmen aren’t the only ones who have scholarship opportunities. Keep looking for continuing student scholarships throughout your college education. Be sure to check for both IU scholarships and non-IU scholarships—organizations in your hometown or in the academic and career area you’ve chosen are excellent places to start.
One credit hour costs a few hundred dollars for in-state students and more than a thousand dollars for out-of-state students—so if you miss a class, it’s like throwing cash away. And if you miss too many classes, you may fail the class, which could delay your graduation and rack up even more costs.
With IU’s banded tuition rate, you can take up to 18 credit hours for the same price as 12. Two extra classes a semester can really make a difference if you want to graduate in four years (or less). Adding extra semesters will increase the overall amount you end up paying.
If you don’t pay attention to the total you’ve borrowed over the years, you may be surprised by how much you owe, how big your payments will be, and how long it’ll take you to pay your loans off. Pay attention to the loan letters you receive from us, and check the National Student Loan Data System to see how much you’ve borrowed.
Purchase a campus meal plan—and fully use it, buy snacks at the grocery store instead of a convenience store, and cook for yourself. Dinner out can get expensive quickly. And do you really need that bottled water or daily latte from Starbucks? Carry your own refillable container for water, and make your coffee at home. If you spend just $4 on coffee on your way to class each day, you’ll spend nearly $300 in a single semester. And that’s if you buy coffee only on days classes are in session!
And if you buy, make sure you sell them back at the end of the semester, rather than giving them away or hanging onto them. (Are you really going to look at that introductory biology text again?)
You’ll save hundreds over what you’d pay for gas, maintenance, and parking on campus. And there’s no guarantee of a parking spot close to your classes. Remember, campus buses are free to all and Bloomington Transit buses are free to students with a valid IU student ID.
Never pay full price for your clothes. You can be stylish while still finding good deals at stores like Plato’s Closet and Goodwill or at sales in mall or department stores. Bloomington has several stores with interesting upscale and vintage clothing, such as Vintage Vogue by GW and Cactus Flower on Kirkwood.
Start paying interest on unsubsidized loans
Unlike a subsidized loan, the government begins charging interest on a federal direct unsubsidized loan as soon as the money is paid to you. You can start paying interest while you’re in school, or you can capitalize it (add it to the principal amount).
Capitalizing interest lets you defer interest payments while you’re in school. That means the interest gets added to your principal—so the next time interest is calculated, you’ll be paying interest on that interest.
See it in action
Ray is a freshman and needs to take out an unsubsidized loan, but he’s not sure how much deferring interest payments for four years will cost him. Here’s how he worked out the numbers:
Paying versus deferring interest
Interest charged (first 48 months)
Interest paid (first 48 months)
Principal to be repaid after 48 months
Interest paid during loan repayment
Total repayment cost
Years to pay off
By paying interest while he was still in school, Ray saved $316 in interest charges.
Get a job
If you can, work part time while you’re in school and full time over the summer. Some employers may even let you work full-time during spring break or the winter holidays—those few extra weeks may make a big difference. Not only will the money you earn help you pay for your education, but balancing schoolwork and a job also helps you build time-management skills and good habits.
Undergraduate student Pam decided to take out a Federal Direct Subsidized Loan with a 4.29 percent interest rate. She needed $3,500, and her plan was to take out $2,000 and get a part-time job to make up the difference. She planned to pay about $52 a month after graduation. Here’s what she found:
No job versus part-time job
Total repayment cost
Years to pay off
By borrowing $1,500 less, Pam will save $360 in interest and pay off her loan three years sooner without increasing her planned monthly payment.
The number one strategy for after you leave school
Repay your loans quickly. It goes without saying that the faster you repay your loans, the less interest they’ll accrue. And there’s no penalty for paying most educational loans early, including federal direct loans.