How to keep costs low

Making good choices makes a difference

Managing your money wisely is a key to an affordable education and less debt after you graduate. Here are some strategies you can use to avoid borrowing money for college or to reduce the amount you need to borrow.

  • File your FAFSA. 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.
  • Look for scholarships. Make your search wide—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? Also, scholarships aren't only for freshmen, so set aside time to browse and apply for them throughout your college career.
  • Borrow federal loans. Federal loans tend to have lower interest rates and better payment plans than private loans, and you don’t have to start paying them back until after you graduate. Stick with subsidized loans if you can; unsubsidized loans start accruing interest right away.

    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.

    For example: 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:

    Interest paidInterest deferred
    Loan amount$5,500$5,500
    Interest charged (first 48 months)$944$1,024
    Interest paid (first 48 months)$944$0
    Principal to be repaid after 48 months$5,500$6,524
    Interest paid during loan repayment$1,274$1,510
    Total repayment cost$6,774$8,034
    Monthly payment$57$67
    Years to pay off1010

    By paying interest while he was still in school, Ray saved $316 in interest charges.

  • Don’t borrow more than you need. 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. See how much you could save if you reduce the amount you borrow.
  • Track how much you've borrowed. Make sure that amount stays in your comfort zone. Aim to borrow no more than your anticipated first year salary.
  • Attend all your classes. Missing a class is like throwing away cash—you’re paying for each credit hour, so be sure you get your money’s worth.
  • Graduate on time. 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.
  • Repay your loans quickly. It goes without saying that the faster you repay your loans after you graduate, the less interest they’ll accrue. And there’s no penalty for paying most educational loans early, including federal direct loans.

Make good personal choices

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.

There are a lot of things to think about when choosing where to live.

  • Consider "safe and comfortable" over "luxurious and expensive" to save costs. If you're taking out a loan to help pay for housing, remember that the more you have to borrow now, the less you may be able to spend on housing after you graduate.
  • Consider living with family.
  • Balance cost of housing with cost of transportation. Rent may be higher living within walking or biking distance to campus, but you might save money on fuel and maintenance costs. 
  • If you have roommates, always create a written agreement about how you'll split rent and utilities. No matter how much you may like and trust your potential roommates, people live and think about finances differently, so it's best to get on the same page from the start.

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.

Remember to check if you're eligible for work-study, and consider applying for those job opportunities!

See it in action

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 jobPart-time job
Loan amount$3,500$2,000
Income from job$0$1,500
Interest paid$517$157
Total repayment cost$4,017$2,157
Years to pay off6.53.5

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.

Buy snacks at the grocery store instead of a convenience store. Cook for yourself (dinner out can get expensive quickly). And do you really need to buy that bottled water or daily latte? 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?)