Learning all of the options for paying back student loans is one of the most time consuming and frustrating aspects of getting an education. From the moment you graduate, you can expect you get hundreds of offers from companies who would like to consolidate your student loan debt. This might make you feel like you’re supposed to consolidate, but that isn’t the best option for everyone. Today I wanted to give you some simple advice that should help you to learn how to pay back student loans in and effective and timely manner.

1. Write down each of your loans, terms, and the interest rates for each. One of the most confusing aspects of paying off and/or consolidating student loans is the fact that you will have multiple loans with different terms and interest rates. Some of your loans may have variable interest rates.

Putting each of the loans down on paper will help you to see which ones you need to eliminate or consolidate.

2. Find out if you’re eligible to consolidate. If you have higher interest student loans (above 7%), you will want to at least look into consolidation. After you finish school there will be a six month grace period and you can consolidate either during or after that grace period. You cannot consolidate before which means you can’t consolidate until after you’re finished with school. Most lenders will want to see at least $5,000 worth of debt and other won’t work with you unless you have over $10,000 in student loan debt.

This usually works for most people since the average amount of student loan debt is over $20,000.

3. Keep your low interest loans. Many of you will have loans whose interest rates are below 5%. If this was my situation I would make minimum payments on those and pay extra on my other loans. You want to always pay off your highest interest debt first and keep your other debt. Once you know out your high interest debts you can pay extra on the low interest ones.

You can also consider consolidating your higher interest loans, if that allows you to improve your interest rate.

4. Don’t consolidate to lower your payments, consolidate to lower your interest. Usually when you consolidate for lower payments, you’re simply extending the term of your loan. This usually extends the term of your loans to 20 years.

People often consolidate Perkins loans and other types of loans that have really low interest. They end up with lower payments because the term of the loan is double or tripled. This is generally a really bad idea because it increases the amount of interest you’ll pay in your lifetime by a huge amount. It would be a lot smarter to hang on to the low interest loans while getting rid of the others.

Evaluate Your Financial Position

College can be a hectic way of life with many ups and downs and unexpected challenges. However, for many young adults, the biggest shock comes after graduation, when you’re confronted with thousands of dollars in student loans that must be repaid.

Record low interest rates have made payments more manageable, but that is all changing. Federal student loan rates are adjusted every July 1st, based on rates for short-term Treasury bills, which have been rising.

If you are out of school and pay your student loans, you can shield yourself from higher rates by consolidating. You lock in the weighted average of all your loans up to the nearest one-eighth of 1 percent.

If you are not financially able to start paying off, or keep paying on, your loans, you are eligible for financial hardship deferments. If you consolidate your loans, you lose your ability to defer payments so make sure you are ready to make your monthly payment for 10 or more years before you consolidate.

How To Consolidate School Loans to Lower Your Interest

The general rule of thumb is that you should consolidate any Stafford loans that were disbursed before July 6, 2006. Graduates that consolidate during their grace period are eligible for a 0.6 percent interest rate reduction.

If you consolidate Perkins loans, you lose repayment benefits like loan forgiveness and a nine-month grace period, as well as subsidized interest during any deferment period. They also have a 5 percent fixed rate, so there is not an advantage to consolidating them.

When you consolidate, you can also stretch out the payment period for up to 30 years. By extending the term of the loan, you reduce your monthly payments, a useful feature for recent grads with little cash; but should consider paying it off way before then due to all of the extra interest you would be paying.

You can always increase your payments. There are no penalties for paying off your loan early. Not everyone can consolidate. Most lenders require a minimum of $7,500 in loans, and some set the minimum balance at $10,000.

Federal law prevents most borrowers who have already consolidated from doing so a second time, even if they locked in at a higher rate. And if all of your loans are with one lender, you’re required to consolidate with them unless they do not offer the service.

Shopping For A Loan Consolidator

Many lenders offer a quarter-point reduction for borrowers who agree to have payments automatically debited from their bank accounts. And some offer a reduction after you make 36 on-time payments.

You need to talk with several companies before making up your mind which company to go with. When discussing the terms of the loan, your research will pay off and you will be able to negotiate additional lower interest discounts if you have similar offers from other companies to compare.

Another good idea is to narrow down your choice by using a loan analyzer at Finaid.org. which will break down the discount rates in real dollars. This will help you to get a good idea of what each lender’s discount is worth over the long term.

This may seem like a lot of time and effort by doing all of this research, but it will pay off in the end. You will be paying this debt for many years and will want to know you have made the best decision.

Many students go through their youth with little desire to even consider reading a statement from their lender for their student loans.  This can be a dangerous decision because it can quickly sneak up on you and come to bite you in the rear.  I suggest that you take the time if you are in college now to pay attention to when you have to start paying your lender and how much.  If it has jumped on your back recently like a clinging monkey then you might need to take action immediately to get a good plan set up for your student loan repayment.

There are a couple simple things to find out to make sure that you can get on the right track to paying off your loans.

1. What is the loan classified as?

There are many types of loans that are out there and they all are going to have different requirements for you based on what terms they have established with the loan.  Many students will find American government funded loans such as the Sallie Mae, Stafford, Perkins, or PLUS loans. 

There are certain loans where you will have the full responsibility and then there are loans like the PLUS loan that is your parents obligation to repay.  If your parents have done that for you then I would suggest that you are a very lucky person.  I would look to do what you can to help pay for it in the future if you are able to create financial security in a short period after college.

There should be a thorough list of paperwork that you should keep by your organized in a file of some kind or typed up on to a computer.  Read through all of the terms to know when you have to start paying and how much is required of you.  Also get a good understanding of any penalties you may have for late payments, just to know what you would have to deal with and how short of a leash your lender has given you.

If you have lost the paperwork then contact the school’s financial aid office to get documentation on what you owe.  This information is easy to gather and shouldn’t take too long for you to get back on track if you have been a miserable mess for the past couple years.  If the school doesn’t have it then they will get you in touch with who does.  This is information that is your legal possession that you can always gain access to.

2. How much am I going to pay you?

When you apply for these loans there are decisions made by the Department of Education as to how much they can offer to your student situation.  They might give you more than you need or not enough and require you to go get another loan from another source.

You will receive statements probably at the end of each semester that you are in school giving you an understanding of how much you borrowed and how much you owe.  Keep these on file just in case if there are errors in their system as to what actually is going on.  This will save you a lot of time.

Make sure that you separate your forms from any scholarships that you may have received because there are plenty of documents out there from many different companies.  Make sure you know first if you are getting a Pell Grant or some kind of scholarship before you get a student loan and for how much because the last thing you want is to get a loan that you don’t need.

3. Who is it that I am paying back?

When you make a decision to go with a certain type of a loan you will also decide which bank you will lend from.  The bank usually will go through a thorough process and decide on how much to give you and then if they do pay you it will probably be on a semester basis until you are finished with school.  Make sure to stay in school if you can to avoid the messy idea of deferring payments.  Many students do it for plenty of solid reasons and it can be taken care of, but with some banks it can be a hassle.

The bank will sell off the loan to Sallie Mae to make more money and in turn you become the possession of Sallie Mae, which is the government established Student Loan Marketing Association.  This association was established to create more loan opportunities for students across the country and has been hailed as one of the best achievements in government action along with the creation student loans since in the 20th century.

Now there are going to be times when Sallie Mae will not only buy up the loan, but sell it to other companies and each time this transaction may happen with your loan, you will be notified so you know who it is that you are paying your bills to.  The terms and conditions will stay the same, but make sure to be on the ball because some companies may be less lenient then others.