Steps
- Apply for federal student loans. Even though loans provided by the government have more favorable terms, one in five students pass up the chance to use them, presumably because private loaners make the process more convenient.[1] If you want a lower student debt load however, you'll have to put forth additional effort up-front. File the paperwork necessary to qualify for federal, state and institutional aid, and if any such aid is offered to you, choose it over private loans.
- Consider consolidating your student loans. If you have several loans, it's possible to group them together and make a single payment at a fixed rate. You can consolidate federal loans or private loans, but you should not consolidate them together--your federal loans come with with rights, options and protections that can be lost in the process of consolidating.[2] While consolidation will probably lower your monthly payment, you may still end up paying more overall because you'll be extending the life of the loan (making those payments for a longer period of time).[3]
- If you're consolidating federal loans, crunch the numbers and find out what your consolidated rate would be. Since the rate will be a weighted average of your current loan rates, try excluding the highest interest loans from the mix to see how that affects the rate.
- If you're consolidating private loans, shop around for the best rate. It'll depend largely on your credit score. You may also be able to get a better rate by having some co-sign with you.
- Investigate your repayment options. Private lenders can offer deferment and repayment options on their own terms, and you'll need to read the fine print in order to see if those options would be advantageous to you. For federal loans, your repayment options are as follows:
- Standard payment. The payments are spread out for 5-10 years. The monthly amount due might fluctuate if you have a variable interest rate.
- Extended payment. Spreads out the payment for up to 25 years. Only available if you have loans that exceed $30,000. The monthly payments will be lower, but in the end, you'll end up having paid a lot more in interest.
- Graduated payment. Payments start out low and increase over time. This is best if you can reliably expect your income to increase.
- Income based payment. This can be very helpful if you're not pulling in a reliable income, but you'll need to provide financial information like tax returns to your lender.
- Perkins loan payment. The minimum payment per month is $30 for an NDSL loan or a Perkins Loan made before October 1, 1992 and $40 after that date.[4]
- Prepay your loans if you can. If you're able to cut expenses and save some money, apply it to your highest interest loan. Send the payment in with a note specifying that you want it applied toward your principal - otherwise they might just assume you're advancing the due date of your next payment. Paying down the principal (reducing the loan balance) will save you money over the lifetime of the loan.[5] Keep in mind, however, that if you have credit card debt, you should probably apply any extra money towards paying that off first.
- Make your payments on time, every time. Some lenders will give you a rate cut if you make a certain number of consecutive payments on time (usually 48). If you can, change your due date and have your monthly payment automatically deducted right after a direct deposited paycheck gets cleared.
- Qualify for loan forgiveness.[6]
- Peace Corps - deferment of Stafford, Perkins and Consolidation loans; partial cancellation of Perkins Loans
- Americorps - 12 month commitment offers $4725 credit towards loan plus a living stipend
- VISTA - $4725 for 1700 hours
- Army National Guard - Student Loan Repayment Program up to $10,000
- Teaching in underserved area - portion of Perkins and Stafford loans forgiven; possibly more loan forgiveness available through the state[7]
- Becoming a doctor in an underserved area
- Becoming a lawyer in the public interest sector
Warnings
- There may be fees associated with consolidating your private loans, but there should never be an up front fee for consolidating federal loans.[8]
- If you can't make your monthly payment, look into qualifying for deferment or forbearance to postpone your obligations until you can get back on your feet.
Sources and Citations
- ? http://www.nytimes.com/2007/09/02/business/02jabba.html?pagewanted=3&_r=1
- ? http://www.studentloanborrowerassistance.org/understand-loans/consolidation-loans/#pro
- ? http://mahalo.com/How_to_Reduce_Student_Loan_Debt
- ? http://mahalo.com/How_to_Reduce_Student_Loan_Debt
- ? http://www.finaid.org/loans/prepayment.phtml
- ? http://www.finaid.org/loans/forgiveness.phtml
- ? http://www.aft.org/tools4teachers/loan-forgiveness.htm
- ? http://www.finaid.org/loans/consolidation.phtml
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