Make the Most of Your Student Loans

For the 66% of students with educational debt, doing homework leads to smart financing

SAN MATEO, Calif., July 20, 2006 - Now that this year’s cap-tossing and graduation parties are in the memory banks, the reality of paying for that higher education is setting in - but students still have options to choose the best way to handle college and graduate school debt. "Most Americans with student loan debt saw a flood of news articles encouraging borrowers to consolidate their loans before government loans underwent their annual interest-rate increase on July 1," said Brad Stroh, chair of Bills.com, who noted that because of the rising U.S. interest rate environment and a government-mandated reset of rates on student loans, rates on federal student loan debt increased by a substantial 1.84 percent on July 1. "Now that student loan rates are no longer at the 3 percent interest rates they hit during the economy’s slowest days, it pays even more to be savvy about borrowing for school or returning to school." According to FinAid, two-thirds of college students borrow to pay for school - with an average loan debt of nearly $20,000. Ten percent of parents borrow an average of $16,218 for their students’ education. And those figures account only for undergraduate education; graduate degrees can pack on an additional $27,000 to $114,000 in student debt (source: FinAid). This year, borrowers also could be affected by two new rules that took effect July 1, making it all the more important to pay attention to smart financing options for student loans.

  • Interest rates on new Stafford Loans will not be variable, but will be locked at 6.8 percent.
  • Previously, if borrowers had multiple loans with one lender, they could only consolidate with the same lender, but as of mid-June, they can consolidate with any one lender.

For those who owe - or who are looking at borrowing for college or graduate school via new student loans starting this year or later - Stroh suggests four steps to find the best financing mechanism for student loans.

  1. Try again next year. If you have older student loans that you have not consolidated, make a note on your calendar to check rates prior to next year's June 30 consolidation deadline. The maximum rate allowed for federal Stafford loans is 8.25 percent. For 2006-2007, the rate will be 7.14 percent for those in repayment, or 6.84 percent for those with in-school deferment. It is possible that rates still will not have hit the maximum by next June 30, and you then might be able to lock in lower rates.
  2. Compare rates. Whether you're looking at new loans or old ones, check to make sure you are getting the best deal. Check out some of the easy-to-use Web site calculators, such as the one in the Bills.com Savings Center.
  3. Check your options. A few career fields - like teaching and emergency services in high-need areas - are eligible for loan forgiveness or debt reduction of student loans obtained to enter that field. Check with your school, professional organization or lender to determine if you are eligible for any of these programs.
  4. Get help if you cannot pay. If you're unable to make payments on your loans, contact a debt resolution professional or get other reputable assistance. Student loan debt typically is not eliminated by declaring bankruptcy, but you may be able to work out a payment plan with your lender if you do not have the income to pay the debt according to the original schedule. Student loans represent a serious financial commitment, and avoiding repayment has major repercussions.

"Student loan debt is one of the few ‘healthy’ types of debt, as it helps individuals better themselves, furthers their careers and society, and generates greater long-term earnings," said Stroh. "With a bit of research, you can make the most of your student loans and your education - and increase your financial know-how along the way. And in borrowing, as in education, there’s always next year to improve your situation." Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and save money by choosing the best-value products and services. Since 2002, Bills.com's partner company, Freedom Financial Network, has provided consumer debt resolution services, serving more than 7,500 customers nationwide and managing more than $250 million in consumer debt. The company's co-founders and CEOs, Andrew Housser and Brad Stroh, were recently named Northern California finalists in Ernst & Young's 2006 Entrepreneur of the Year Awards.