Yes, you can save money and avoid student loan debt by employing some of the classic strategies suggested by personal finance gurus. But you may not save as much as you think—and you could even wind up spending more.
Here’s a look at three oft-circulated strategies for limiting college costs—and why each of them is a bit simplistic, flawed, and perhaps even misleading:
Attend Community College, Then Switch to a Four-Year School
Community college costs maybe a few grand per year, a fraction of what the typical four-year public university runs. Private schools are even more expensive, as we all know. So it’s no wonder that many personal finance experts suggest that students stock up on cheap community college credits for a couple of years. The idea is to then transfer to a four-year college and finish up. Both your degree and your resume will state where you completed your college education, not where you began it.
This appears to be a win-win. You can save money and still graduate from an institution with a reputation that’s superior to a community college, right? Well, the strategy is not without its downsides. A Money magazine story recommending the community college money-saving strategy noted one such issue:
Transferring can be a social challenge, since your child will be a newcomer among classmates who have already made friends. Also, the most elite schools take very few transfers: Princeton accepted none and Dartmouth only 4% of applicants last year, although the University of Pennsylvania did take 20%.
That’s not the strategy’s only flaw. CBS News recently cited a study, from the Texas Guaranteed Student Loan Corporation, that indicates students who start at community college and finish up their degrees at four-year public universities tend to borrow about the same amount as students who attend state colleges for all four years:
“Many students have traditionally been guided to follow the transfer route, with the assumption it will help them save on certain college costs,” observed report author Carla Fletcher, s senior research analyst with the group. “Unfortunately, we found this to be untrue, and in fact, the transfer route may end up creating significant barriers for some students.”
At private colleges, transfer students tended to take out more in loans ($27,000) than those who started at the schools as freshmen ($25,000). Part of the reason is that the families of transfer students tend to have less money, and are therefore more likely to need loans than families that send their kids to private schools for all four years.
But the study found that the financial aid packages tended to be more generous toward students arriving as freshmen. The median grant for transfer students was $5,300 at private schools, compared to $9,000 for other students. Another problem for transfer students is that often, some credits don’t transfer, and they’re required to take—and pay for—more classes than they’d hoped. It all adds up.
Attend a State School, Not a Private College
Tuition at state universities is a fraction of private college costs. This is nearly always the case if we’re talking the full “sticker price” at these institutions. Due to financial aid, grants, and such, however, almost no one pays full price for college.
As a recent “Best Value College” list pointed out, students at private colleges tend to get larger discounts, often amounting to 60% or more off the list price. Even so, most students will find that it still costs less to go to a state school. But the difference in price may not be quite as big as students assume, once aid is factored in. What’s more, depending on the kind of packages a student is offered, a private school can wind up being less expensive than the state university with the cheaper list price.
Work Your Way through College
Old-timers who worked through their college years and paid off their education as they went along, without taking out student loans, love to tell today’s debt-paranoid students that they should do the same. Yet, as a lengthy New York Times story makes clear, this strategy isn’t nearly as easy as it sounds in today’s world of soaring tuition bills and a lackluster job market. It’s especially difficult to find decent-paying jobs if you don’t have a college degree—something that college students obviously don’t have.
Another unfortunate irony at play is that students who make money and prudently save to pay for college tend to get less financial aid than students who have little or no earnings and nothing in the bank. One 21-year-old student featured in the Times story utilized what seemed like a very responsible, money-savvy approach. She attended community college, then switched to the four-year college Appalachian State in North Carolina. While going to community college, she worked as a waitress, earning $16,000 in 2011. Here’s what happened as a result:
Those earnings, however, kept her from being eligible for much federal financial aid, and she was only able to earn just over $12,000 in 2012 at a similar job at a hotel about 10 miles from campus. Her parents have not been able to help her pay for college, and she is now on pace to end up with at least $30,000 in student loan debt.
Earning money during college can and often does help students avoid piling on the debt. If nothing else, a part-time job provides students with some beer and “going out” money, and it also keeps them busy with an activity in which they’re not spending money. But in some ways, there appear to be penalties—financial disincentives—for working and saving up for college.
The student mentioned above might have very well wound up with just as much debt had she attended Appalachian State for all four years and never bothered working the waitressing gigs. In which case: Why bother?