The Bruin Budget Plan is a 7-step series of money-managing techniques. When all steps are implemented, a student's debt burden can be dramatically reduced.
Step 1: Create a formal budget. You cannot manage your debt without first knowing how you spend your money. Having a realistic formal budget aids you in controlling your finances. In following it, you will rarely have to wrestle with the question, "Can I afford this?" You will already know how much money you need for necessities and what you have allotted for less pressing items. Never budgeted? Write down the price of everything you buy for a few weeks to a month, then build your budget on paper or use budgeting tools found online. If you don't create a formal budget, you may find yourself unnecessarily accepting, to your future detriment, all of the loans offered on your financial aid notification.
Step 2: Borrow only what you need. After honestly budgeting your expenses, having focused on 'need' rather than 'want', you will be able to better determine if you can live on less than you have been awarded, perhaps reducing or even eliminating specific loans all together. For example, if you were offered a four year total of $19,000 in subsidized Direct Loans and you decided you could live on $300 less each academic year during your four years of undergraduate, you would save yourself from owing on an additional $1,200 in loan money by not borrowing it in the first place. This works out to a small, monthly sacrifice on your part of $25. There are a few ways to modify your award package. You can reduce an offered amount on your financial aid notification, or obtain a Petition for Re-evaluation form from Financial Aid's website, or just speak with your financial aid counselor.
Step 3: Work and pay cash for personal expenses. You are bound to have other expenses that are not school-related. To counter theses expenses, work 10 or 11 hours a week, as a work/study employee if possible, and pay cash for personal items as a better alternative to using your credit card or your financial aid funds. Financial aid was not designed to purchase CDs, movie tickets, vacations, and dates, but rather education expenses only. Working part time, if your schedule and department permits, and using the money earned to cover needed personal items will help lessen your overall loan debt.
Step 4: Practice Bruin Pay-As-You-Go. Under Bruin Pay-As-You-Go you make small payments toward your loan while you are in school. For example, if you paid $25 per month toward your federally subsidized Direct Loans during four years of undergraduate, you would reduce your loan principal by $1,200. To put the Bruin Pay-As-You-Go concept into practice, contact your lender and collect all the information you need in order to make an 'in-school' payment. If making the payment by mail, always include instructions to the lender about the payment; keep a copy of the letter and your payment check for your records. The hardest part is being disciplined and consistent in making your voluntary payment every month without fail. There is generally no penalty for prepayment on federal student loans. (Private loans may charge a penalty for prepayment, so read your promissory note carefully first.)
Be wise. Avoid adding the interest accruing on unsubsidized loans to their principal balance by not capitalizing, by paying the interest as it accrues. Also, make in-school payments on unsubsidized loans before doing so on subsidized loans. And most especially, don't make in-school payments on loans that carry cancellation benefits for which you may qualify. [Review the terms, conditions, benefits, rights and responsibilities listed in your promissory note(s).]
Step 5: Have a long-range view. It is important to have a long-range view of your student loans. That way you can see how reducing your award and making payments while you are in school translates into savings over the life of the loan. If you see fit to make these small sacrifices now, you will dramatically reduce the total amount paid to the lender when the loan is finally paid in full.
Step 6: Make accelerated payments. Although repayment may be a long way off for you, keep the idea of 'accelerated payments' in mind. Put it into practice when you begin repaying your loans. Paying more than the minimum due means paying less overall. Remember the $25 in-school payment mentioned earlier? Try paying the $25 (or more if you can) in addition to your monthly minimum payment. Your principal balance will reduce faster, and you'll come out of repayment sooner. (Caution: Check your promissory note first to insure you will not be charged a prepayment penalty fee.)
Step 7: Take advantage of lender repayment incentives. Lenders may offer monetary rewards for doing business with them and for making on-time payments once you are in repayment. A common incentive is a rebate on the amount borrowed after making a designated number of on-time payments. Check lender websites for incentives and qualifying details. (Take note: As with any credit agreement or loan contract, read the fine print and think before you act. Make sure the 'reward' offered truly benefits you before proceeding.)