Kiplinger’s had a recent article pointing out the benefits of federal loans like Stafford and PLUS over the private loans that have flooded the market. It also discusses how to deal with any private loans you may have. Here are some excerpts:
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Outside the federal student-loan program, your options are limited. Federal Stafford loans offer more-favorable repayment terms than private loans, plus more opportunities to have loans forgiven.
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your best bet is to shop around for the best terms you can find on a private-loan consolidation (compare programs at SimpleTuition.com and FinAid.org). If your credit score has improved significantly since you took out the loans, you may be able to get a better rate.
Consolidating also lets you stretch out the term of the loan, which may lower your monthly payments. You’ll pay more interest over time, but the breather could get you over a hump. And you can pay ahead on your loans as your income rises, as long as there are no prepayment penalties.
Some occupations forgive loans as a recruiting tool. And if you meet income requirements, you can deduct up to $2,500 per year in interest on any loans used for higher education.
Once you’ve arranged the best terms you can, you’ll just have to bite the bullet.
Leisa Aiken, a financial adviser in Chicago, recommends that clients with significant student-loan debt go on a crash program to pay off high-rate debt as soon as possible, even if it means continuing to live like a student. Move back home with Mom and Dad, get rid of the car, take a second job, and put the extra cash toward your most expensive loans. Low-interest loans can wait. “Paying $150 a month on a 4% loan isn’t all bad,” says Aiken. “It’s more of a nuisance.”
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