Student loans adding up: Here's what you need to do to dig yourself out

By Beth Orenstein

College students now owe more money for their education than the nation owes on credit cards. According to a recent story in the New York Times, last year, student loan debt outpaced credit card debt for the first time. Not only that, but student loan debt is expected to top a trillion dollars - a figure that's hard to fathom.

The mountain of student debt is rising at a rapid pace. According to those who track it, in 1993, less than half of those graduating were in debt when they did so. Eleven years later, two-thirds of those receiving bachelor's degrees owed big time. Last year, those who borrowed money to attend college graduated with an average debt of $24,000 - as much money as their grandparents probably paid for their first home.

Burden of student debt likely to worsen

The situation is only likely to get bleaker. Public colleges and universities may have no choice but to raise tuition and fees as the states reduce the subsidies they give them - states across the country are facing their own budget crises and have to cut somewhere. Higher education is an easy target.

Not only do graduates owe money for their schooling, but many also owe on credit cards. They'll be paying for a long time. And with the sour economy and unemployment still near 10 percent, how easy can it be to find a job that covers living expenses and debt payments?

Tips for digging out of student debt

So, if you're about to graduate and owe on loans and credit cards, what can you do to dig yourself out of debt? Here are some tips:

• Get a zero APR balance transfer credit card. They're back. Zero APR balance transfer cards were the rage a few years ago, and mostly disappeared during the financial meltdown. Now you can find them from Discover, Citibank and Chase and others. Some have 0 interest introductory periods of up to 18 months. These work especially well if you pay off the balances before the 0 interest periods expire. And if don't continue to charge to these cards and increase your debt load.

• Be sure to deduct eligible interest. If you're making payments on education loans, you may be able to deduct up to $2,500 of the interest you pay from your taxable income. Good news: You can claim this deduction even if you do not itemize deductions on Form 1040's Schedule A. You'll find more information and the forms you need to offset your education costs at the IRS website.

• Consolidate your loans. If you consolidate your loans, you only have to make one payment rather than several each month. If you have just one payment to make, it minimizes the risk of your paying late.

  What you do with your credit cards - whether you pay on time and pay in full or only the minimum each month - affects your credit score. But it's only part of it. Whether you pay your loans on time and how quickly you pay down your loans affects your credit score, too.

  If you're late making your student loan payments, it could affect the rest of your life because lenders look at your credit score when determining whether you're eligible for a mortgage or a car loan and at what interest rate. Employers, too, have been known to use credit scores in hiring decisions - no matter how unfair that seems!

• Keep tabs on your credit score. You're entitled to a free FICO credit score, which says a lot about you to any potential credit lender. Always, check for any mistakes in your credit profile so you're sure that you can get the best student credit cards and best loan rates.