August 22 2011|08.00 AM UTC

Alex Gutow

How to Manage Student Loans

Category: Personal FinanceTags: , , , ,


Americans owe approximately $826.5 billion in credit card debt and owe a staggering $829.79 billion in student loans. This comes at no surprise when the average four-year degree from a public university or college costs about $50,000 for four years (before living expenses) and a private school can cost over three times that! To pay for this, most students are forced to take out loans. However, these loans can be managed and can actually help improve your credit over time.

While in school, make sure that you are making wise decisions about which loans you will take out. Federal loans (including Stafford and PLUS) will always be the best option as these have the lowest interest rates. If possible, only get subsidized federal loans because the government will actually pay the interest on these loans while you are in school. This means that you will owe less on these overall.

After subsidized loans, move on to unsubsidized federal loans. These will accrue interest while you’re in school. To help pay for these, consider taking a part-time job to cover the interest payments while in school. This can help to lower the monthly payments you will have after graduation. You’re last resort should be private loans as these have the highest interest rates.

Once you graduate, it’s key to gather all the information about your loans. Find out how much you owe, what the rates are and what the minimum monthly payments will be. This information is available at the National Student Loan Data System, where you can log on using the PIN from the FAFSA process.

Once you have this information, prioritize the payment of the highest interest loans first, which are typically the private loans. The faster you pay these off, the less interest you pay which can save you a considerable amount.

If you have multiple loans and varying interest rates, you may want to consider consolidating your loans. Consolidating combines all your loans into one – one payment and one applicable rate. This can reduce the amount of the monthly payment. As an added incentive, some lenders may offer more discounts on the interest rate after consolidation. Lenders use a weighted average of the interest rates to decide what the applicable rate will be. If a student’s projected savings is at least one percentage point, they can benefit from the consolidation rates. For the student whose loans total $48,000, consolidation can offer an instant discount on the total of 1%, or $480.00.

Even though they aren’t very pleasant to discuss, understanding your loans can get them paid off faster and save you thousands over time.

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{ 2 comments… read them below or add one }

Monica Clark September 6, 2011 at 7:42 am

Alex,
I think you have some great tips and its so important for rising college students to fully understand what types of loans are available, how they work, and what the financial implications are. Our oldest just started community college to get his core classes out of the way, and from there he will attend the last two years at a traditional four year university. We are able to pay for the community college as we go, but he is saving to pay for the last two years. We hope to avoid him having to get student loans, or at least limit the amount, however he has to maintain a certain GPA and have employment to get funding from us! We will see if our strategy works…

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Mike April 11, 2012 at 11:11 am

I have a lotttt of student loan debt. I consolidated my federal loans, but not my private ones. There is about $85 of private loans. Do you know who I could consolidate with? PS I have poor credit :-(

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