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4 Steps
to Make the Most of Your Student Loans
--For the 66% of students
with educational debt, doing homework leads to smart
financing - By Andrew Housser --
Now that most of
this year’s pomp and circumstance, cap-tossing,
and graduation parties are in the memory banks, the
reality of paying for college or graduate school is
setting in. According to FinAid, two-thirds of college
students borrow to pay for school – with an average
loan debt of nearly $20,000. Ten percent of parents
borrow for their students’ education, borrowing
an average of $16,218. And those figures account only
for undergraduate education. Graduate degrees can pack
on an additional $27,000 to $114,000 in student debt1.
Most Americans with
student loan debt doubtless saw the flood of news articles
over the past few weeks encouraging borrowers to consolidate
their loans by the cutoff date – June 30 –
before the annual interest-rate increase on July 1.
On that date, because of the rising interest rate environment
in the United States, rates on federal student loan
debt increased by a substantial 1.84 percent. Now that
student loan rates are no longer at the 3 percent interest
rates they hit during the economy’s slowest days2,
it pays even more to be savvy about borrowing for school
or returning to school.
And this year, borrowers
also could be affected by two new rules that took effect
July 1, making it all the more important to pay attention
to smart financing options for student loans.
1. Interest rates
on new Stafford Loans will not be variable, but will
be locked at 6.8 percent.
2. Previously, if borrowers had multiple loans with
one lender, they could only consolidate with the same
lender, but as of mid-June, they can consolidate with
any one lender.
If you missed the
June 30 consolidation deadline, it’s too late
for this year. But for those who did – or who
are looking at borrowing for college or graduate school
via new student loans starting this year or later –
these four steps will help make sure you find your best
financing mechanism for student loans.
1. Try again next year.
If you have older student loans that you have not
consolidated, make a note on your calendar to check
rates prior to next year’s June 30 consolidation
deadline. The maximum rate allowed for federal Stafford
loans is 8.25 percent. For 2006-2007, the rate will
be 7.14 percent for those in repayment, or 6.84 percent
for those with in-school deferment3.
It is possible that rates still will not have hit
the maximum by next June 30, and you then might be
able to lock in lower rates.
2. Compare rates. Whether you’re
looking at new loans or old ones, check to make sure
you are getting the best deal. Check out some of the
easy-to-use Web site calculators, such as the one
in the Bills.com Savings Center.
3. Check your options. A few career
fields – like teaching and emergency services
in high-need areas – are eligible for loan forgiveness
or debt reduction of student loans obtained to enter
that field. Check with your school, professional organization
or lender to determine if you are eligible for any
of these programs.
4. Get help if you cannot pay. If
you’re unable to make payments on your loans,
contact a debt resolution professional or get other
reputable assistance. Student loan debt typically
is not eliminated by declaring bankruptcy, but you
may be able to work out a payment plan with your lender
if you do not have the income to pay the debt according
to the original schedule. Student loans represent
a serious financial commitment, and avoiding repayment
has major repercussions.
Student loan debt is one of the
few “healthy” types of debt, as it helps
individuals better themselves, further their careers
and society, and generate greater long-term earnings.
With a bit of research, you can make the most of your
student loans and your education – and even
increase your financial know-how along the way. And
in borrowing, as in education, there’s always
next year to improve your situation.
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