Five Ideas for Saving Money on Student Loans

Student loans provide the springboard for bright careers and higher earnings. They can also drag a young professional deep into a financial hole if his repayment isn't managed wisely.

Enthusiasm abounds for college graduates. Exciting career opportunities await-including potential for high earnings, interesting travel and, if you're lucky, a really nice parking space. It sounds rosy, but there's a thorny side to the story: Student loans, which graduates sometimes forget, need to be repaid.

Student loans can provide a financial education outside the classroom. Learn how to shrewdly manage your loans, and you'll develop an understanding of debt management that will benefit you for the rest of your life. Here are five ideas to get you started on the road to repayment:



1. Consolidate

If your loans are at rates higher than what's currently on the market, consolidation might be an option. Combining all your student debts into one loan can significantly reduce your monthly payment-but it may extend the term of the loan. Avoid consolidation unless you have in excess of $10,000 in student loans, and be careful not to mix private loans with government ones. If you combine the two, you lose federal benefits such as deferments and subsidized interest.


2. Automate payments

With your hectic everyday pace, it's easy to miss a bill payment now and then. Late paying wreaks havoc on your credit score. Avoid this dilemma by setting up automatic bill payments. Your monthly bill will be deducted automatically from your savings or checking account. As an added bonus, many lenders offer a reduced interest rate for loans with automatic deduction.


3. Don't be late

Arriving late to a party may be fashionable, but if your payment arrives late, your credit score suffers. If financial woes are causing you to fall behind on your bills, contact your lender immediately. Work with them to find a solution to get you over any short-term hurdles.


4. Look for cash incentives

Many lenders offer cash incentives for good repayment performance. Make 12 payments in a row, for example, and a lender may credit $1,000 to your account. Research various lenders to find the best cash-back program.


5. Choose the right repayment option

Many different types exist; be sure to pick one that fits your financial situation. Options include:

Standard repayment: Monthly payments are fixed up to 30 years. This option offers the lowest overall interest costs.

Income sensitive repayment: Monthly payments adjust annually based on your income. The more you make, the faster your loan gets paid off.

Graduated repayment: Initial repayment amounts start out low, and then steadily rise during the life of the loan.

Brighter grads will learn to view their loans as more of an opportunity than an albatross. Instead of focusing all your attention on investments and 401(k) programs, consider the above methods for repaying your student loans. A penny saved is a penny earned, a fact that holds true for anyone who understands the value of effective debt management.
By: Greg Mischio