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Your Options For Paying Back Your Student Loans

I graduated from my undergraduate degree at the perfect time. Consolidation federal student loans rates were at an all-time low. I locked in a consolidated rate of 2.75% for the life of the loan! It was awesome, because I have already saved thousands in interest with a rate that low. Yeah I know, i’m rubbing it in your face if you graduated this May. The best consolidation rates you’ll find this year are in the 6 to 7% range. More than two-thirds of college students leave with student loan debt, and the average bill they are carrying is $19,200 according to the Department of Education. There’s an obvious need for recent graduates to be counseled about what to do with their student loans. I am only one person, and I’m not an certified financial counselor, but if you want my opinion, that is what I will give you.

Consolidating is still the way to go, with caution.

You may not save much on interest payments by consolidating your loans at the current rates. But, I would encourage you to shop around for a good, private consolidation loans company. College Loan Corporation is a credible college loan consolidation company, and I have heard that their customer service is pretty good. There are three reasons why I would consider consolidating even though the initial math might not equal much savings.

  1. It simplifies your life. Loan consolidation puts all of your payments into one lump sum payment. You don’t need to keep track of 6 to 8 different payments you need to make every month.
  2. You can still get your rate down by up to 1.25% with certain incentives. Generally, most consolidation or refinance companies will knock off .25% for setting up automatic withdrawals from your checking account. This one is hard to swallow for only a .25% reduction. There may be a time when you don’t have the money in your account, and then they get angry when they can’t pull the money out. I would watch out for this, but if you are disciplined enough to have them EFT your account, go for it. Also, if you make your first 12 payments on time, they will knock off 1% after one year. This is a nice rate reduction. You’ll see a nice savings by knocking a point off of your consolidation.
  3. You can negotiate a little bit with private consolidators to help get you the best rate with incentives to lower the rate. It is a very competitive business, as you will see with the barage of junk mail you begin to receive in the next six weeks. Don’t think that they won’t negotiate a little bit with you, and many of the customer service representatives are very accommodating. Remember, they’re salespeople in this instance. They want your business, so they are willing to work with you.

The Bottom Line…

Pay off your student loans as quickly as possible. Develop a plan to pay them off within a certain amount of time. Don’t settle for paying them off in a 10 or (gasp) a 20 year period. Those loans will begin to feel like the roommate that you can’t get rid of. My suggestion is that if you have some other smaller debts such as credit cards or other small bills lingering around, clean those up and get them paid off before you start tackling the big, hairy student loans. This will allow you to focus more on paying them off with bigger payments that knock down the principal balance quicker.

Don’t be overwhelmed when you see the size of the loan. Even though it only paid for a piece of paper, the knowledge and experiences that you gained will help you be a more productive and valuable asset in the working world. Whether it’s working for a large corporation or owning your own small business, a college degree is valuable even though it’s not necessary to succeed in life. So keep your chin up, and start chipping away at Sallie Mae!

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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