What’ the right way to pay back your student debt?
It’s a question that puzzles a lot of college graduates, who are trying to figure out how to best juggle their student loans.
For some college grads, student loan consolidation will be a smart idea. What’s also important is choosing the right payment option for student debt.
Kathy Kristof, a columnist with the Los Angeles Times and one of my fellow bloggers at CBSMoneyWatch, wrote a valuable piece this weekend on student loan consolidation and other student debt strategies.
Here are some of Kristof’s highlights on how to manage your student debt:
Don’t mix your student debt. If you decide to consolidate student loans, keep different types of debt, such as unsubsidized and subsidized Stafford loans, Perkins loans, and private loans separate.
If you consolidate a federal Stafford loan with a private student loan, for instance, you will lose the more favorable options that federal student loans offer. That’s a big no-no. You also want to keep any Perkins loans separated because they offer very low interest, as well as deferment and loan forgiveness programs that other loans don’t provide. Also keep separate subsidized and unsubsidized Stafford loans. If you lump the two together, the federal government would no longer pay the interest on the subsidized Stafford loan if you defer payments.
Pick the right loan repayment option. If you can afford it, select the standard repayment of 10 years. Your monthly payments will be higher, but you will slash the amount of interest you pay.
Other student loan repayment alternatives:
Income-based repayment: With this method, you pay based on what you can afford according to a federal formula. The amount you pay, which can be as low as $0, will vary each year depending upon your salary. Not everyone will qualify for this option. You can learn more about this repayment method at IBR Info.
Extended repayment: You can stretch your student loan payments out over 30 years. Your monthly payments will be lower, but you’ll pay far more in interest.
By the way, if you regret the student loan repayment plan you selected, you can switch to a different one.
Research. I’d like to add this suggestion. If you are struggling with student debt, the more you research this topic the better. I’d urge you to spend time at the website of the Student Loan Borrower Assistance and The Project on Student Debt.
Lynn O’Shaughnessy is the author of The College Solution and she writes a college blog for CBSMoneyWatch.