Paying off student loan - few tips on how to reduce your student loan debt
When it comes to paying off student loans, many borrowers discover they have few options other than pay them off with monthly payments as per agreement. And since most student loans are amortized over lengthy time stretches, the interest you end up paying is often twice as large as initial debt, Your student loan is likely the largest monthly recurring expense, save for your mortgage or rent payment, and car payment. To add injury to insult, the interest on a student loan can not be deducted. Things weren't bad for the graduates n 2002 and 2003, where the interest rates for student loan consolidation stood at the lowest rates in few decades. Interest rates between 3 to 4 percents were common. Still, to reduce student loan debt faster than planned, was something every responsible person aspired to accomplish.
Today, the lowest possible interest rate for Federal Consolidation Loan is 5.375% which is not too bad. But the rates for three most common student loans with first disbursement on or after July 1, 2006 are much higher:
Federal Stafford Loan - 6.80%
Graduate Federal PLUS Loan - 8.50%
Parent Federal PLUS Loan - 8.50%
So it is more imperative than ever, start paying off aggressively and eventually pay off your student loan as quickly as possible. Here are the tips for the current students and their parents, and those who have consolidated loans at the rates at high rates, on how to reduce your student debt.
Tip #1
If you have two loans consolidated with the same institution, one significantly smaller than the other, paying off the smaller student loan should result in decreased payment. You can pay it off with a 0% credit card, which many of you are getting in a mail. These cards often offer no balance transfer fees and 0% interest rate for up to 14 months.
Tip #2
Use Home Equity Line of Credit or HELOC to pay off a portion or an entire student debt. The interest rates on these credit lines are at about 8.00%, and the interest paid is fully tax deductible. The other advantage is that HELOC amortized differently than a regular student loan - your loan payment is recalculated monthly after the payment is received. So each following month, you pay slightly less.
Tip #3
Refinance your house and take cash out to pay off student loan. The mortgage interest rates are low, with the 30 year Fixed Mortgage rates at as low as 6.125%. Again the payments become tax deductible and the rate is likely lower. But even if the rate is the same or slightly higher, it still makes sense.
Other tips
Ask your lender about following promotions which are rather common these days,
- zero origination fee
- zero federal default fee
- up to 1.00% automatic rate reduction as a graduation present
- 0.25% rate reduction if you set up auto-debit payment program
- up to 1.00% rate reduction if you make 60 monthly payments on time
- deferments and flexible repayment options
09/222009 - Important update: with lowest mortgage and HELOC interest rates in many years, paying off student loan using cash obtained from refinancing or HELOC makes sense again. HELOC is much preferable since it is revolving line as explained above. As always, borrow in moderation.
Fri Jan 19, 2007 04:01PM | Copyright: www.bad-credit-advisor.com | More in Student Loans | Comments (0)
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