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Wednesday, October 31, 2012

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Nicole Mayer

I would like to provide a few caveats and additions to some of the tips listed on the teachingdegree.org website:

2. Set up automatic debit.
This is not the wisest move for some borrowers as I have heard dozens of complaints about students who signed up for automatic debt with their loan servicer and then had their payment withdrawn early, resulting in insufficient funds fees charged to their bank accounts. I would suggest doing a trial run with your servicer after graduation, making manual payments (online or by mail), for a few months to see if you have any issues prior to signing up for automatic debit. After that, especially if you are offered an interest rate reduction, go for it. If you are not offered an interest rate reduction reward for automatic debt then you are better off making the automatic payment through your bank's website and that way you have complete control of when the payments come out and you can stop payment if you know you do not have sufficient funds to cover the payment at any given time.

3. Make payments as soon as possible.
It is true that if you can make interest payments while in school, this will greatly reduce your overall balance. However, don't kill yourself trying to make early payments if (a) you don't have the extra money (since you shouldn't be borrowing more than you need anyway) or (b) have other debt with a higher interest rate that you can put the money towards. Your student loans are not going away any time soon so I suggest looking at them like a mortgage payment. A necessary and long-term commitment to something that benefits you. Keep in mind your overall financial well-being and remember that most financial advisors would tell you to always pay off debts with higher interest rates before paying extra towards debts with lower interest rates.

4. Pay off private student loans first.
This one depends on your circumstances. Right now, the federal Stafford unsubsidized loan rate is a whopping 6.8%, and it has been since 2006. For some unknown reason, while the legislature repeatedly talked about lowering rates a few months back, unbeknownst to most people, this was only for SUBsidized loans (which are based on financial need and account for only about 30% of federal loans). With a 6.8% interest rate on most federal loans, it is quite possible that a private student loan could have a lower interest rate. If that's the case, pay the loan with the highest interest rate first. And something VERY important to keep in mind: if you are paying off your private student loans, remember that you probably have more than one and that they likely have different interest rates. If you make a payment over the minimum payment amount, make sure to instruct your loan servicer to apply the excess funds to the account with the highest interest rate. If you do not do this, most lenders will apply the excess funds equally to each of your loans, which means you will pay more in the long run. If you have not consolidated your federal loans into one federal loan with one interest rate, this same strategy could apply to federal loans as well.

5. Know your loans.
Totally agree with this tip. The National Student Loan Data System, found at www.nslds.ed.gov is a GREAT resource that few people use. Make sure what your lender tells you about your loans matches up with what is listed on NSLDS.
6. Consolidate with caution.
This is good advice and borrowers should keep in mind that there are origination fees charged at consolidation that could greatly add to their loan balance. While federal loan consolidation has been pretty straightforward in the past, private student loan consolidation (of which there are very few options) can result in a much higher interest rate and may very well not be in the borrower's best financial interest.

Lene

All these tips are very helpful, thank you so much. I especially like 5th point – know your loans. It’s not only about student loans. Before taking out any loan it’s necessary to learn all the necessary information about it – repayment terms, penalties, interest rates and etc. You should know for sure how much you have to pay every month and do your best to make payments on time. Also understand the difference between private and federal loans before filling out a student loan application, it’s necessary to make sure that the option you have chosen is the best one for you.
Lene works at http://paydayloansat.com/

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