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These Top 5 Strategies Work Extremely Well

Top 5 Best Student Loan Strategies

Opinions vary on the best student loan but this I know: "the Government always has the best student loans available and they will subsidize certain college loans".

The absolute best student loan is a Perkins student loan but these college loans are reserved for students with the greatest need.  These loans might not be available to you but you'll never know unless you try for them.

The second best student loan is a Stafford Student Loan also issued by the federal goverment.  This loan comes with a little hitch in the fact they offer two different types: subsidized (government pays the interest while you are in school) and unsubsidized (you have to pay the interest).

The top 5 Strategies that will help you find the best student loan are:

1.  determine how much money you will need to borrow
2.  shop around for loans from various institutions
3.  shop for interest rates
4.  loans available at your chosen college
5.  repayment options and strategies

Determine How Much Money You Will Need

Today's graduating seniors are averaging just under $20,000 in debt they must pay back on their college loans.  Because tuition is increasing faster than inflation it's not unreasonable to expect your child to come out of college with a debt of $25,000.

Over the next 4 years interest rates on college loans will be dropping significantly.  Your strategy should be to pay as much NOW and borrow later when the interest rates are lower.  Currently for this year the interest rate is 6.8% on unsubsidized loans and 6% on subsidized loans.  The last year of the cycle these rates will be down to 3.4% for subsidized loans.

If you have money stashed away for college spend every last cent before you borrow and when you start repaying your loans you could save on average $50 or more per month if you borrow at the lowest interest rate.

Shop Around and Compare Student Loans at Lending Institutions

Yes, the federal government sets the rates for Stafford and Perkins loans. However, they do not set the standard loan fees which should be no more than 2.5% of your student loan.  Set up fees are common and the two you should be aware of are: origination and default fees.  Be wary if you see additional fees involved.

Shop and Compare Loan Interest Rates Only If.......

The only reason would need to shop for interest rates is if you are looking for the best private student loan or you will be consolidating your student loans.  Private student loans are offered by lending institutions not the federal government.  

Typically these private loans are usually sought when a student is close to graduating and they have exhuasted all their federal monies.  Make sure and try to get as close to the federal governments interest rates and watch out for the fees they will attach to your loans.

Here is a run down of the interest rates over the next 4 years offered by the federal government.  (subsidized loans)

  • 6.0% for the 2008-09 school year
  • 5.6% for the 2009-10 school year
  • 4.5% for the 2010-11 school year
  • 3.4% for the 2011-12 school year
  • returns back to 6.8% for the 2012-13 school year.

Are My Loans Available at My Chosen College?

Once you complete your FAFSA application they will tell you exactly what student loans you are eligible for.  Once you have that report, check with your college to make sure they have a list of lenders who can get you that particular loan.

You can also get a list of lenders for your chosen college by visiting www.finaid.com or www.efc.org.  Many people like to shop online but we are concerned with student loan scams so we stuck with lenders who are local and who we trust.  Discovery Student Loans is who my wife is getting her loans from and they offer some great incentives.

Repayment Options and Strategies

It amazed me how easy it was for us to get loans.  What scares me is how much it will cost us to repay those darn loans.  Many times, students will consolidate their student loans and it makes sense.  In less than a year we will be consolidating our loans and these are the repayment options offered.

Standard repayment option is a 10 year repayment option.  With all loans the shorter the term the faster it is paid off and the less interest you will pay.

Graduated payments are based on making smaller payments at the beginning and larger payments near the middle and end.  This will cost you more money in the long run.

They have some payment options that are tied to your income. Each year you will apply for this plan that will determine how much you will pay based on your current income status. As you can imagine this type of option will cost even more money over the long haul.

If your student loans are enormous you can extend your loan for up to 25 years.  You can pick one of the first two options above (graduated or standard).

Strategies For Repayment

1.   Ask if they have penalties for paying off your loan early.  Live at home or live in a basement.  Use the money that would be earmarked for rent to help pay for your loans.  This one strategy if combined with your normal payment can cut the length of your payments in half.

2. Direct Payment Fee Reductions:  any time you can knock off even a quarter of a percent your overall money owed is reduced.

3.  Good Performance Bonus:  some lenders will write off a portion of your origination fee if you are good with your first 24 payments.  

4.  Possible interest rate cuts in the area of 2% if you are good with your first 48 payments.

5.  Graduation bonus:  some lenders will reduce your interest rates or fees if you show proof that you graduated.

6.  Believe it or not, if you are a teacher and are willing to work in less than favorable climates, you might be able to trade your college debt by working a certain amount of years in that area.  Same for other professions like nurses.

As you can see, lenders are willing to work with responsible young adults who are serious about eliminating their debt.  If you don't miss payments and finish paying off your debt, you will see a very good credit score the next time you need to borrow money.

Don't be fooled into thinking that you can eliminate your student loans by filing for bankruptcy. Recent laws have been written that make it extremely difficult to get rid of your student loan debt.  They will get their money back from you, one way or another.

 

 

 

 

 

 

 

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