How to reduce loan costs

USA Today (Society for the Advancement of Education), August, 1998

Students who must borrow money for college should take steps now to reduce their repayment burden, suggests Tess Van Duvall. educational debt management consultant. Emory University, Atlanta. Ga. Her primary advice to those seeking educational loans is to "try to borrow less than you think you will need. You can always borrow more later at no additional cost. When people have less money, they try to make it work. When you borrow more, you end up using it."

Other tips Van Duvall gives on how students can manage their educational loans better include:

* Pay interest on unsubsidized and private loans while still in school or even during any deferment or forbearance period. "For example, interest on a $20,000 loan could be as little as $16-20 per month. If students pay that monthly interest now, they can save themselves thousands of dollars in interest over the life of their repayment, depending on the amount borrowed"

* Ask lenders about repayment options such as graduated payments, income-sensitive repayment plans, or interest-only deferment options.

* If you choose to consolidate, try not to not consolidate loans with different interest rates. "If a student consolidates a Perkins Loan (five percent interest rate) with a Stafford Loan (8.25% rate), both loans merged together might have a mean interest rate of around seven percent. You lose the benefits of the lower interest rate loan." If you are thinking of consolidating several loans, first ask lenders or servicers about alternatives such as loan purchasing and serialization. "With these options, you get to make one payment to a servicer, who distributes your payment to your lenders."

* If possible, ask family members to contribute small portions to your education. "For instance. five family members contributing $200 per year can spare you $1,000 in borrowing per year of school. For an unsubsidized loan of $1,000 at 7.66% over a 10-year re payment plan, you will repay $1,434: over 20 years, you will repay $1,957."

* Take advantage of interest-rate reduction incentives. "For example, some lenders will reduce interest rates for borrowers who make electronic payments directly from their checking accounts."

* Contact the U.S. Department of Education about Income Contingent Repayment Plan consolidation. "This program caters to graduates with lower incomes, such as those doing public interest work, but other graduates may benefit as well. Under ICRP the repayment schedule ends in 25 years and whatever you owe is canceled with a one-time repayment penalty fee."

* If paying a lump sum on a loan is an option, request to pay on the principle. "Obviously, the less principle you have the less interest you accrue."

* For planning purposes, find out what the starting salary is n your field and the region where you expect to live. "Your monthly student loan payment should be five to 15% of your expected gross monthly salary."