Student loan survival guide: drowning in student loans? Save yourself from debt using our simple step-by-step plan

Philip Jones wanted nothing more than to marry his fiancee, fly away to Costa Rica, and embark on the rest of his life. But something was holding him back--the $40,000 in student loans he owes to Direct Loans and Sallie Mae.

Jones, 30, was stressed out because he knew that if he fell behind on his loan payments, the U.S. Department of Education could provide offsets against Social Security payments and garnish his wages and tax refunds, without a court order. Until recently, only the Internal Revenue Service wielded such power.

Luckily, the 2004 graduate of Rutgers University College of Engineering knew a little something about forbearance, a temporary suspension of loan payments that most lenders will allow when times are tough. For Jones, his wallet was being pulled in too many directions; he was trying to pay for a house, a wedding, and a honeymoon within a six-month period.

"I didn't have to make a payment for six months, so that money went toward the wedding and honeymoon. It's easing the financial stress," says the mechanical engineer, who works for Hayes Pump Inc., an industrial equipment distributor in Fairfield, New Jersey.

For the class of 2002, the most current information available, the median student debt was $16,500, according to Sallie Mae, the nation's leading provider of education funding. And with the average college debt burden increasing, many recent grads are finding it hard to manage when the bills are due.

While Jones opted for forbearance, there are plenty of other ways to stay on track with student loan payments without breaking the bank. Erin Korsvall, spokeswoman for Sallie Mae, offers a few tips for taking the pain out of repayment.

* CHOOSE YOUR REPAYMENT PLAN CAREFULLY. "There are a number of different repayment options to help you manage your monthly payments," Korsvall says, offering income-based and interest-only payments as examples. Borrowers can also extend their payment terms to lower the monthly payments.

"Each situation would apply for borrowers who are in a position where they need to minimize their monthly payments. Perhaps they are a recent graduate who has just entered the work force," she says.

* STAY IN TOUCH WITH YOUR LENDER "Make sure they have your current address. You don't want to miss the bills," Korsvall says.

* PAY ON TIME. "It's the best thing to do," Korsvall says. "Sallie Mae offers an interest rate discount when you pay on time. There are no pre-payment penalties."

One way to ensure you pay on time is to pay electronically. There are a number of benefits associated with electronic payments, in which the lender takes the money directly from your bank account. Payments are never late, so the borrower never has to worry about late fees. This also builds good credit, showing lenders that payments are consistently paid on time.

Forgoing stamps has another advantage. Some lenders, including Sallie Mae, will lower your interest rate if you choose to pay back loans via direct debit. For example, one borrower saw his interest rate drop from 4.8% to 4.25% after he switched to electronic payments. Between consolidating his debt and paying by debit, this student was able to lower the monthly payment for his Perkins and Stafford loans from about $300 to $138.

* ALERT LENDER BEFORE MISSING A PAYMENT. "The consequences of default are significant and could include a tarnished credit rating, garnishment of pay, and the inability to obtain additional aid and future credit," says Chris Greene, spokesman for the U.S. Department of Education. "In addition, legal action can be taken to recover unpaid loan balances and fees. If borrowers are experiencing trouble meeting their obligation, they should contact the Department of Education at 1-800-4FEDAID or their lender directly."

Borrowers have 270 days of nonpayment before their loan goes into default, according to the Department of Education. If the loan holder can't recoup its money, it may then decide to use an outside agency to try to collect the money. If that happens, as much as 25% of the amount of the loan could be added to the loan to cover the cost of collection.

"The last thing the department wants is for a borrower to go into default and force us to collect on the loan. Borrowers experiencing difficulties in making payments should contact their lender or the department, and we will work with them," Greene says. "Remaining in an active, current repayment status is in the best interest of the borrower and the department."

The government is currently trying to collect about $31 billion in defaulted loans, according to the Department of Education.

* TAKE A BREAK FROM PAYMENTS. Borrowers can postpone repayment through deferment or forbearance. Both allow for a period of time when the borrower doesn't have to make payments, and they are better alternatives to defaulting.

Deferment allows borrowers to stop loan repayment for specified periods of time under certain conditions, such as re-enrollment in school, unemployment, or economic hardship. You must formally request a deferment from your loan holder. You may need to complete a deferment form and show documentation that you are eligible for the deferment, according to the Department of Education. There is a three-year limit for deferring loans for those with an economic hardship or full-time unemployment. There is no limit for deferment based on reenrollment in school.

Student Loans - Federal Government Aid

Government Student Loans, scholarships and grants are available to anyone looking for higher education, whether it is a college diploma, university degree or any other accredited academic certificate. There are many ways of finding aid for your further education. Private student loans, federal government student loans and any other academic loans are different from student scholarship and grants as they have to be repaid.

Student loan schemes are available in two different types of loans, subsidized and unsubsidized loans. Find out if you are eligible for subsidized loans by completing an application online. The interest for the subsidized loan is paid by the Federal Government in the United States and in some other countries the finance government department provides some sort of study assistance. The unsubsidized loans have a normal percentage of rates of interest.

Using online services can help you find all the necessary information for applying for federal government student loans online. Expenses not subsidized by the Federal Government such as education related expenses or overseas study can be applied for through a private student loan. Many of the student loan lenders private and government, have online application and processing facilities. The loans are reviewed and this process can usually take about a week or two. The repayments of Federal student loans usually begin six months after graduation. This is referred to as the grace period. Most student loans are deferred for repayment until students have completed their schooling or leave school.

Student loans are not only used for the tuition but also to pay for school related costs such as paying associations, housing costs and lab fees, stationery and text books. If you are 18 years of age you can apply for a student loan. Private loans for students are not given without a co signatory or a credit report. Credit unions give student loans if you have collateral to put up. During the credit period, you have the option of paying or not paying the interest on the loan. It will become easier if you do make periodical payments to cover the interest of the loan. If you have the opportunity to pay the interest off, the capital repayment once you have graduated becomes easier for you. Student loans are to be repaid in ten years. However, longer repayment terms can be provided for large student educational loans.

Government Student Loans, scholarships and grants are available to anyone looking for higher education, whether it is a college diploma, university degree or any other accredited academic certificate. There are many ways of finding aid for your further education. Private student loans, federal government student loans and any other academic loans are different from student scholarship and grants as they have to be repaid.

Student loan schemes are available in two different types of loans, subsidized and unsubsidized loans. Find out if you are eligible for subsidized loans by completing an application online. The interest for the subsidized loan is paid by the Federal Government in the United States and in some other countries the finance government department provides some sort of study assistance. The unsubsidized loans have a normal percentage of rates of interest.

Using online services can help you find all the necessary information for applying for federal government student loans online. Expenses not subsidized by the Federal Government such as education related expenses or overseas study can be applied for through a private student loan. Many of the student loan lenders private and government, have online application and processing facilities. The loans are reviewed and this process can usually take about a week or two. The repayments of Federal student loans usually begin six months after graduation. This is referred to as the grace period. Most student loans are deferred for repayment until students have completed their schooling or leave school.

Student loans are not only used for the tuition but also to pay for school related costs such as paying associations, housing costs and lab fees, stationery and text books. If you are 18 years of age you can apply for a student loan. Private loans for students are not given without a co signatory or a credit report. Credit unions give student loans if you have collateral to put up. During the credit period, you have the option of paying or not paying the interest on the loan. It will become easier if you do make periodical payments to cover the interest of the loan. If you have the opportunity to pay the interest off, the capital repayment once you have graduated becomes easier for you. Student loans are to be repaid in ten years. However, longer repayment terms can be provided for large student educational loans.

Student Loan Debt Consolidation

As with most debt, people are looking to simplify, simplify, simplify. This typically means combining debt to one low-interest payment. The answer for most college and postgraduate students is a student loan debt consolidation. The whole enterprise of student loan debt consolidation is wide and varied. A great many lending institutions, both private and federal, are out there waiting to lend a hand and a great deal of money.

When considering student loan debt consolidation, it would be wise to take it step by step. A very simple and useful first step would be in the direction of your college advisor’s or financial aid administrator’s office. You can begin the process by first finding out if student loan debt consolidation is in your best interest, and if so, where and how to start.

Qualifications for student loan debt consolidation must be the first consideration. There are some basic guidelines to follow:

1. Students NOT enrolled more than half-time, or students out of school for 3-6 months.

2. Students in grace period (up to 6 months after leaving school), or with existing loans in deferment or default status.

3. Students with no previous consolidation loans.

Of course, there are exceptions and instances where these general qualifications for student loan debt consolidation will not apply, especially in the case of some postgraduate programs.

When applying for a consolidation loan, another basic consideration is to weigh the differences between federal (a.k.a. direct) consolidation loans as opposed to private consolidation loans. These two types of student loan debt consolidation programs differ mainly in terms of interest rates and credit ratings.

Federal student loan debt consolidation requires that the applicant have at least one Direct or Federal loan outstanding, such as a Federal Family Education Loan (FFEL). Currently, the interest rate on federal loans is based on the average of the loans being consolidated. Once the interest rate is calculated it is fixed for the life of the loan.

Private student loan debt consolidation interest rates can range from the current prime lending rate to whatever the loan institution sees fit, based on credit rating. Those who apply for this kind of loan must have a good credit rating or provide a cosigner with one.

Student loan debt consolidation will take a degree (forgive the pun) of due diligence and patience to complete. But in some cases it may decrease your student loan payments up to half and simplify your life by even more. The length of consolidation loans can span from 10-25 years, with extended plans available from 15-30 years. On the bright side, the interest paid on most student loans and/or student loan debt consolidation is tax deductible.

In the "big picture" of life an education is a priceless commodity. Knowledge is power and with that power great things can be accomplished.

U.S. Troops Given a Break on Student Loan Repayment

According to federal regulations, mobilized military, including those in active duty, National Guard and Ready Reserves called to active duty, are not required to make student loan payments during their absences. This applies to the 145,000 troops currently involved in the Middle East conflicts, representing a significant percentage of student loan borrowers. The Department of Education has required that these troops receive a level of leniency from student loan lenders.

U.S. Education Secretary Rod Paige said earlier this year, "As they [deployed troops] defend the freedoms we cherish, our soldiers should not have to worry about their student loan obligations and resuming their studies." The Department of Education directed lenders to continue deferment status for all activated service members who recently left school or who were students prior to deployment.

Borrowers holding subsidized student loans are eligible to have the Federal Government assume the interest payments on their loans while deployed. Similarly, the Department of Education strongly encouraged colleges and universities to provide full refunds of tuition and related expenses to students required to withdraw from school and fulfill their military obligations.

ACFS -- a student loan consolidation firm -- representative Nicole Knight stated, "We want our troops to know that their efforts are appreciated. That's why provisions have been made that will remove any anxiety or stress associated with student loans and school."

In the 2002-2003 school year, approximately $75.8 billion in federally guaranteed student aid was disbursed to students. Federal regulations were implemented to ease the minds of those who received this aid and are currently involved in the Middle East conflict. These regulations are more relevant today than ever, as thousands of soldiers have been overseas for more than a year.

Students Survive on Loans -- Go on, take the money and run, but be careful

(U-WIRE) CHICO, Calif. - College students occasionally dig themselves into a hole of debt so deep they can barely see the light of day, much less lift the brick of payment pressure off their chests to catch their breath.

In a moment of despair with time running short, students look to be rescued. Loans become the easiest and quickest life jacket used to save students from the drowning debt of their college years.

"I have taken out two short-term loans since I've been in college," said Kathryn Bailey, a Chico State organizational communications major. "My sophomore year I needed a bed and my parents were really broke, so I took out my first loan. I then paid it back with my financial aid."

Students have the option to repay the $250 plus a $3 fee for the short-term loan in 90 days or take the payment out of a student's financial aid. Otherwise, their enrollment is withheld for the following year until paid. Any student can take out a short-term loan without stating a compelling reason.

"I just took out another loan for my spring break cruise because I need that extra $250 in case of an emergency," Bailey said. "I'll probably pay it back over a few months."

Bailey said she is in debt $1,500.

"When I graduate in a year my parents are going to help me out, since they haven't at all so far," Bailey said.

Nellie Mae offers students advice and direction when deciding the right path for their payments in the future.

"Unfortunately, when students are enrolled in school they concentrate on paying their tuition, but at graduation they begin to panic," Nellie Mae marketer Marie O'Malley said. "Students worry about their payment obligations. We essentially talk about what options are available for the student borrowing money. Leavin;g it up to the borrower to decide what is best."

O'Malley reassures borrowers that they can adjust their payment plans and also defer their payments.

According to the Texas Guaranteed Student Loan Corporation Web site, borrowers are faced with circumstances that will make it difficult to make payments on a loan. If a student is faced with a situation that qualifies postponement or adjustment of loan payments, they may apply for a deferment or forbearance.

It is important to be aware of every aspect of taking out a loan, and to plan for repayment regardless of graduation status. Borrowers should keep in contact with their lender if they change or leave a school, graduate, change enrollment, change an address or phone number or run into financial trouble.

"Students should remember by making a loan choice now, there will be ramifications 10 years from now," O'Malley said.

More Students Turn to Private Student Loans

(U-WIRE) NEW YORK - An increasing number of college students are turning to private loans to finance their education -- despite the risk of sinking deeper into debt -- as the gap between the cost of a college education and federal aid continues to widen.

The average cost of a four-year private college education has jumped by 43 percent since 1992, while federal loan limits have not increased in over a decade, said Sandy Baum, an economics professor at Skidmore College. Baum is co-author of the "Trends in Student Aid Report," which is published annually and sponsored by the College Board.

Meanwhile, there has been a private education loan increase of 45 percent among undergraduates and 51 percent among graduates since the 2001-02 academic year.

"Last year students borrowed $6.9 billion from private lenders," Baum said. "This represents a 477 percent increase from the 1995 academic year."

The total volume of private student loans has now surpassed the amounts awarded annually under the government-financed federal student educational grants, Federal Work Study and the Federal Perkins Loans programs combined, she said.

But while private lending has increased, it still only comprises 10 percent of the total student loan volume, said Kenneth Redd, director of research policy and analysis for the National Association of Student Aid Administrators.

"Only a minority of all undergraduates -- about 4 percent -- receive private loans, but these are generally students attending higher-cost schools like New York University, or who have very high financial need," Redd said.

The majority of students receiving private education loans are graduate and professional students in the law and medical fields.

The drawback of private student loans is that monthly payments begin accumulating interest right after disbursement, so interest accumulates while students are still attending school.

"While it is a small percentage of students that borrow from private lenders like Sallie Mae, those who do turn to private loans are borrowing quite heavily," said Marie O'Malley, vice president of marketing at Nellie Mae Corp. and co-author of the 2002 National Student Loan Survey, in a statement. She reported that about one-quarter of private loan borrowers perceive themselves as having significant problems with their education debt after graduation.

Excessive debt can affect students' decisions about their careers, students said.

Jude Divers, an undergraduate in the School of Continuing and Professional Studies, borrowed $6,000 in private education loans this year. She would like to go to medical school after graduating from NYU but considers this pricey dream "iffy" because she does not want to add to her debt.

Private education loans from lenders like Citibank and Sallie Mae, unlike federal loans, allow students to borrow for non-tuition costs like room and board.

Students at NYU can borrow from one of the two lenders at negative 1 percent interest rates without fees, said Antonio Del Bono, NYU's director of financial aid. "These rates are among the lowest in the country," Del Bono said.

But the lowered rates have not eased some students' fears about life after graduation.

"My first job out of school, I'll be making a lower-end salary," said Cindy Luff, an NYU graduate student in occupational therapy who has incurred more than $100,000 in debt. "Now that these programs are starting to list these loans on our credit reports, how am I going to be able to get a car or rent an apartment?"

Some students said they were uncertain whether higher salaries could eventually cover the extra burden of education debt.

"The NYU name better get me the kind of job I'll need to be able to pay my money back," Divers said. "I'm paying so much for the name, and so far I'm very disappointed that I am not getting my money's worth."

A few students said counseling required for federal student loans should be mandated for students obtaining private loans.

"What is missing is that they don't sit with the student and strategize," Luff said. "We don't get good counseling at the Office of Financial Aid. They don't provide students with any direction."

It is likely that if federal education loan limits were increased, a significant proportion of the students who are currently receiving private student loans would obtain more federal loans instead, Baum said.

Congress is considering raising federal loan limits under the Higher Education Act, which is up for reauthorization this year. The bill, which called for colleges to lower their tuition rates in October, proposes increases in all forms of federal financial aid, including grants, loans and work-study.

Other students, like Jessica Ebert, who has borrowed over $20,000 in private loans to pay for a graduate degree in science and environmental reporting at NYU, consider the cost a good investment.

"It concerns me that I'm here for less than two years, and my debt will be more than my entire undergraduate education," Ebert said. "But I'm here to learn a craft, and that craft makes me happy. So even if I have to pay off loans for the next 20 years, it's worth it."

Private Student Loans: Pros and Cons

Many financial aid experts will urge prospective students, with conviction, that private student loans are the logical alternative to federal aid in affording higher education. Although naysayers of federal aid are correct in that private student loans bridge the gap between federal aid and the actual cost of higher education, these private alternatives can be more damaging to borrowers than beneficial if used as a substitution to federal aid rather than a supplement.

Indeed private student loans have their advantages. Applicants can be approved for sizeable loans - in some cases up to $30,000 - in minutes. There are no application deadlines, rather prospects who are enrolled halftime or more, or are planning to enroll halftime or more, at any accredited higher education institution may apply at any time. Furthermore, private aid is awarded not on need-based criteria like federal aid, rather on creditworthiness.

However, as any conscientious consumer would admit, "If it looks too good to be true, then it probably is." Although the advocates of private education loans persuade borrowers that interest rates are fixed, what they really mean is that interest rates are fixed at prime rates that fluctuate quarterly based on LIBOR (London Interbank Offered Rate), plus a margin at the discretion of the lending institution. Similarly, such advocates would have prospective borrowers believe that private college loans offer affordable repayment options comparable to federal student loans.

Although private student loan borrowers are granted certain flexibility regarding the timeline in which repayment begins, private loan repayment terms cap at 15 years, half of the time allocated to qualified federal student loan borrowers. A trivial discrepancy you say? Not so. By extending a repayment term - possible only through consolidation - borrowers' monthly payments decrease by over 50%.

Private student loan holders forego other vital benefits afforded federal loan holders. For instance, if a federal student loan holder becomes disabled or deceased, the loans are forgiven making repayment unnecessary. Private loan holders' heirs would have to repay the loans in full from the deceased's estate.

Even the disabled and unemployed are still liable for their debt. Nobody anticipates such catastrophic events; however, the federal government provides an alternative to the hardship of unaffordable loan repayment by complete loan forgiveness.

As reputable private loan sources purport, private student loans are only valuable when filling the gap between total college expenses and a borrower's awarded financial aid. To use private student loans as a substitution to federal aid, rather than a supplement is short-sighted on the part of the borrower. Researching affordable methods of securing college financial aid is a short-term investment of time for a long-term return.

Tips for Managing Your Student Loan Debt

1) Be proactive; find out what you owe and who you owe

• Find out what your total debt is, what kind of loans you have, where they are held, and who you pay.
• Check nslds.com to get a list of your student loans and the details of each loan. Keep records and important paperwork in a safe place.

2) Make your payments on time

• Paying on time will help establish good credit.

• Paying on time will decrease the total interest that accrues on your loan.

• Delinquencies and defaults on student loans will lower your credit rating, and defaulted loans are turned over to the federal government for collection.

3) Make your payments affordable

• Shop for the best benefits. Many lenders offer borrower benefit programs that can lower your interest rate or reduce your loan principle. Choose the best program for your situation.
• Choose a repayment plan that works for you.

Standard – Monthly payments are fixed with a payment term up to 30 years. This plan yields the lowest overall interest cost compared to other repayment plans.

Graduated – Monthly payments are initially lower for the first 2-3 years and then gradually increase over the repayment term.

Income Sensitive – The monthly payment amount is adjusted annually based on your income.

But watch out for any monthly payments that are lower than the actual interest that accrues on your loan each month. This will increase your debt to such a level that you may never be able to pay off the principle.

Is Consolidation for you?

Consolidation is the process by which a lender pays off your individual loans and refinances the total balance into a new consolidation loan with a fixed interest rate and one monthly payment. Because the total balance is higher, you will have a longer repayment term and your monthly payments will be lower. In addition, if you consolidate during your 6 month grace period prior to entering repayment, your interest rate will be fixed at the lower grace period rate.

Consolidation Guidelines:

a) You should have more than $10,000 in federal student loans to make it worthwhile.

b) The loans you wish to consolidate must all be under your social security number.

c) Do not consolidate federal student loans with private student loans. If you consolidate your federal loans into a private consolidation loan, you will lose your federal benefits e.g. fixed interest rate, deferments, subsidized interest, etc.

• Have your monthly payments automatically deducted from your bank account. Most lenders offer a .25% or more interest rate discount for choosing the automatic payment method.

4) Make your payments convenient

• Consolidate your loans (if this is the best option for you) so that you have one monthly payment.
• If you do not consolidate, have your lender combine your loan payments on one monthly bill.
• Have your monthly payments automatically deducted from your bank account.

5) Know what you are entitled to

• Some lenders offer you “benefits” that are not unique benefits; they are really just entitlements that all student loan borrowers receive from the federal government. These include:
  • Fixed interest rates
  • No fees
  • No credit checks
  • No prepayment penalties, and
  • Rates that are “0.6% lower if you consolidate while still in school, or in your grace period.”

• Another entitlement on your federal student loans is the right to have a deferment or forbearance on your loan if you meet the federal requirements. Choosing a certain lender will not affect this entitlement.

6) Know what will cause you to lose the benefit the lender offers

• The benefit offering is what many people use to evaluate a consolidation loan. Equally important is knowing what can cause you to lose the benefit.
• Know what the grace period is for a late payment. Some loans do not provide ANY grace for payments. In that situation, a payment due on Saturday has to be processed on Friday or you will be late.
• Look for benefits that become “permanent.” Some benefits will cease if you have one late payment OVER THE LIFE OF THE LOAN.
• Be careful if the automatic withdrawal (referred to as Automatic Clearing House, or ACH) and the benefit are tied together. If you lose the withdrawal option, the benefit goes away, too. There are some very easy ways to lose ACH, such as:
  • The opportunity to sign up for ACH is limited to 30 days from the signing of the application. If the borrower does not follow up with the lender to get ACH WHILE the application is processing, then they can be outside of the sign-up window. ALL benefits are lost before they get their first bill.
  • They are required to sign up to receive their bill via e-mail. In addition, every month they must reply to the e-mail, acknowledging receipt. If they do not, they lose ACH, which causes them to lose their benefits.
  • Returned e-mails, insufficient funds in their checking account and failure to notify the lender of a change of address are additional ways to lose ACH.

How to Choose a Nice Student Loan

Looking for savvy ways to finance your education? Then it's time to go shopping - to look at a range of loan options, that is. As interest rates on federal college loans rise and shift to fixed rates, experts say it's more important than ever to accurately calculate the cost of your education, consider all of your financing options and knowledgably select the ones that will be cheapest over time. Here's how to do it:

INVESTIGATING OPTIONS

"A popular mistake students make [when it comes to college loans] is not knowing all their options," says Raza Khan, president and co-founder of MyRichUncle, which offers private student loans. "The challenge seems so daunting, that most students take the first loan option they're offered."

But as of July 1, 2006 federal college loans, which were previously based on market rates, have moved to fixed interest rates. For the PLUS loan, that means an interest rate of 8.5 percent, and for Stafford loans, 6.8 percent. Khan says, if market interest rates go down, private loans may become a better option.

Even if federal loans remain the best deal, Khan says, the cost of education is so expensive that most students need to supplement the federal loans they're offered with private ones. In this case, he warns, "the loans which a university recommends may not be the cheapest financing option available."

A recent "60 Minutes" investigation revealed that some universities offering students particular financing options were receiving kickbacks from the organizations financing the loans. To make sure you're getting the cheapest interest rate, investigate all of your options, including loans recommended by your school and those available from other sources.

MyRichUncle, for example, offers a variety of loans tailored for particular needs, such as those customized for students who need cash to live on when they complete unpaid internships or are studying abroad at international institutions. Recently, the company began offering pre-prime products, which lend to students who lack credit -- and as a result would typically have a hard time securing loans - based upon unconventional factors such as academic performance.

CHOOSING THE CHEAPEST RATE

It may sound obvious to recommend choosing the cheapest financing option available, but Mark Kantrowitz, publisher of finaid.org, says often students do not.

"A lot of students will select private loans because the student has the obligation for repayment, even though prior to the change in rates PLUS loans were cheaper," he says.

But, even if the loan is technically in your name, most loans require a parent co-signer. Either way, parents are on the hook - so better to go with the cheapest deal. Kantrowitz also emphasizes the importance of accurately calculating the cost of education. Remember that tuition costs are likely to rise each year, so multiplying the cost of tuition for your freshman year by four won't work.

When looking at private loans, take into account all of the costs associated with them - such as origination fees and the ways in which interest will compound over time (Finaid.org has calculators to help you figure this out). And be sure that you're comparing the lowest rate that you will qualify for with each organization, which may differ from the lowest rate on offer based on factors such as your credit.

LUCRATIVE LOOPHOLES

If federal rates remain the cheapest option, being savvy can help you save.

"Once you have been in school for two years, consolidate your PLUS loan every year," Kantrowitz says.

Although the PLUS loan is now fixed at 8.5 percent, the maximum interest rate for consolidated loans is capped at 8.25 percent. By consolidating, you'll save a quarter percent.

Kantrowitz also says you'll lessen the amount of dough that the government believes you can afford to spend on college - known as your Expected Family Contribution, or EFC, on the Free Application for Federal Student Aid (FAFSA) - by limiting the amount of money in your name on bank and other accounts.

While the government looks at 35 percent of your own assets in considering your ability to pay for college -- a number that will change to 20 percent on July 1, 2007 -- the maximum they will consider is 6.4 percent of your parents' assets. So spend your own money first.

EVERY BIT COUNTS

John Hadeed, a senior studying business management at Fordham University in New York, is keeping his loans in check while he's in school by paying just the interest each month.

"If I waited until I was out of school to start paying, my loans would have gone up by several thousand dollars simply in interest," he says.

You may not be able to pay much while in school - that's the reason for the loan - but small efforts like this can amount to a big difference over time.

Need more information? Finaid.org offers a variety of tools to help, including information on loans and savings, and calculators to estimate the cost of college, your EFC and loan payments. With a bit of work, locking in a better deal could save thousands of dollars over the life of your loan.

Five Tips for Saving Money on Your Student Loans

On February 8, 2006, President Bush signed into law a budget reconciliation bill that will impact your student loans as a student and a graduate. The interest rate on any new student loans (Federal Stafford Loans) that you take out after July 1, 2006 will be fixed at 6.8%. Any student loans you have taken out prior to that date will remain at a variable rate.

The good news is that origination fees on student loans are scheduled to phase out over the next several years, which means fewer fees on your student loans. Additionally, if you will be pursuing a graduate degree, a new PLUS Loan initiative will allow graduate and professional students to take advantage of PLUS funds. This will enable you to cover your total cost of attendance with federally guaranteed, low-interest loans instead of Alternative Loans, which are typically more costly.

If you are nearing graduation, you are probably thinking about consolidating your student loans through the Federal Loan Consolidation Program to lower your monthly payments up to 50%. The tips provided below will help you to deal with questions you may have concerning graduation and how to handle your student loans.

The average new graduate will owe more than $220 in student loan payments each month. Even if you have not received your first student loan payment yet, you should consider that there are important deadlines approaching. You can save hundreds or thousands of dollars in interest by consolidating now because the interest rate on your student loans will increase in July.

Because your rate is currently variable and can increase to as high as 8.25%, it is strongly recommended that you lock in now while rates are still the 4^th lowest in history (you can lock in as low as 4.5%*). As the pattern of rising interest rates continues, your rate AND monthly payment will likely go up if you do not consolidate before July 1st. How you manage your student loans can have a big impact on your financial future. Following these simple tips will make it easier.

Tip #1 - Don't let your interest rate go up. Student loan interest rates are variable - they change every July 1^st. You can permanently lock in your interest rate by consolidating now.

Tip #2 - Use automatic payments. Most lenders offer a reduced interest rate when your student loan payments are automatically deducted from your checking or savings account. This can add up to big savings. Plus, you won't have to remember to write a check each month, and your loan payments will always be on time.

Tip #3 - Don't get behind on your payments. If you are having trouble making your student loan payments, you should immediately contact your loan servicer to find out if you are eligible for deferment or forbearance. Just as with any other loans, late student loan payments will negatively affect your credit.

Tip #4 - Choose the best payment option for you. Multiple payment options are available to student loan borrowers who consolidate. A payment plan that fits your current financial situation can help you keep up with your loans. And, you can switch plans when you need to.

Tip #5 - Get cash back from your student loans. A lender or servicer will often offer borrowers incentives to make their loan payments on time for a specified amount of time. For example, CLC^® offers borrowers up to $2,000 cash back after they make nine payments on time.* *

Call College Loan Corporation with any questions you may have regarding your student loans: 800.692.6121.

*4.5% with automated debit payment plan. Conventional payers can lock in as low as 4.75%.