Your Finance: Tips for repaying student loans

Originally published: February 8, 2012 9:54 PM
Updated: February 12, 2012 11:39 AM

The Class of 2011 is said to be the most indebted ever, with average loan balances near $27,000, according to Mark Kantrowitz, publisher of May grads started getting billed around Thanksgiving Ouch.

That's double-ouch for the grads who are still looking for jobs or working in low-paying, no-benefits gigs. But there are, in this era of low interest rates, some ways to cut student loan payments or costs. Here's an overview.

Use new tools to understand your options. You can consolidate your loans into one that stretches far out into the future; that will lower payments but raise your total cost of borrowing.

Or you can pay extra every month to burn your loans early; that will raise your payments but lower your total costs. You can see your options in graphic detail at a new website,

Explore lower payback options for your federal loans. If you can afford to keep up with higher monthly payments, stick with the program you're already on. But if you don't have a job or it's a low-paying one, consider enrolling in the federal Income Based Repayment plan, which will lower your payments to affordable levels. Get all of the details at

Don't be in a rush to consolidate, says Kantrowitz. In most cases, it won't save you any money. It may even cost you more if you mix low-interest- and high-interest-rate loans. Instead, list all of your loans (including credit card debt) by rate, and aim to pay off the highest-rate ones first, by sending any extra money there.

Try to manage private loans. They tend to have higher rates and few refinancing choices. Some options? You may be able to find a cheaper loan via a credit union or at Wells Fargo, which does offer private student consolidation loans, says Patrick Kandianis of SimpleTuition, a rate-shopping site that also runs the paybacksmarter site. That's because rates have fallen on student loans in the last few years and now average around 6.5 percent.

Get Mom, Dad and Grandma to help. Intra-family loans are really a win-win deal right now, if your family can manage your money, pay your bills, keep an agreement and not discuss it at Thanksgiving.

With older folks forced to accept 1 percent or far less on their bank savings, and their grandchildren paying 8.5 percent or more on private student loans, it might make sense for Grandma to cash in a certificate of deposit and pay off the private loan. Pick an interest rate in the middle, write a contract and make payments to her every month. Don't try this if your relative really can't afford to lend you the money, obviously.