Student Loans & Financial Aid info

Congratulations all you college student graduates of 2007. Expect a mailbox full of missives to help you transition from the college campus to the real world: congratulatory cards (with checks enclosed) from family and friends, a few job offers and plenty of enticements from lenders eager to handle your student loans and turn them into the Best Student Loan.

Although the first two are certainly more welcome, it pays to spend time considering the latter. More than two-thirds of graduates leave college with student loan debt, according to the Department of Education. Their average tab: $19,200 and growing at a very fast pace.

In recent years, as the variable interest rates on the Stafford loan dipped to historic lows of 2.77% (3.37% in repayment) in 2004, student loan advice for recent graduates could be summed up in a single word “consolidate”. Not so, for this year’s graduates, who face current rates of 6.62% during the in school and grace periods, and 7.22% during repayment.

The use of consolidation to lock in a low rate no longer applies. Students have to be more proactive about getting the best student loan deal to begin with.

Thanks to two recent changes, the Class of 2007 faces the added burden of mixed loans — some fixed rate, some variable, some already consolidated. Loans disbursed after July 1, 2006, carry a fixed interest rate of 6.8%, while those disbursed prior have variable rates up to a maximum of 8.25%. That date also marked students’ last chance to consolidate loans while still in school.

To get started off right, here are seven considerations for this year’s graduates: Mind your grace period on the loans you do have. Some borrowers can expect to receive their first student-loan statement before their first real-world paycheck. There has been a huge wave of in-school consolidations over the past few years, as interest rates moved to record lows. But in doing so, students gave up their six-month grace period.”

Are you in this boat? Before you gloat, consider joining their ranks. Consolidating before your six-month grace period runs out snags you a lower consolidation interest rate; currently 6.625% instead of the 7.25% you would get post-grace. For a graduate carrying a $20,000 balance, that is a difference of $1,795 in interest, paid over the life of your loan.

When considering a consolidation do it cautiously. Our experts agree — with such high rates, there is less incentive to consolidate your loans this year. The reasons students will consolidate are more to do with stretching repayment and lowering monthly payments. It does not hurt that one payment to one lender is easier to keep track of than four to different lenders. What constitutes the best student loan for your financial situation? This is something you really have to think about.

With fixed-rate loans in the mix, consolidating may not work out to your advantage. Someone carrying $20,000 in Stafford loans — $15,000 consolidated at 6.625% and 1 $5,000, 6.8% loan — would pay a total of $7,458 over the life of the 10-year loans. That is $100 less than the total interest you would pay by consolidating all the loans under a 10-year repayment schedule.