- The Washington Times - Saturday, June 25, 2005

Tips on managing student loan debt:

• Consolidate federal loans before July 1. Interest rates — now as low as 2.77 percent — on federal loans are expected to go up by at least two percentage points. Student loan rates are adjusted annually, every July 1.

• Unlike a mortgage, student loans can be consolidated only once.

• Get a lower interest rate by setting up automatic bill payment. Being on time with student loan payments for at least 36 months can result in even lower rates. Combine these two strategies, and the interest rate can be lowered by as much as 1.25 percentage points.

• Check to see if the interest portion of the loan is eligible for a tax deduction. For some borrowers, up to $2,500 in student loan interest is deductible.

• Do not consolidate loans with a spouse’s loans when getting married. The spouse with the lower initial debt could end up getting a raw deal if the couple divorce, paying half of the consolidated loan amount.

• Even if overall finances are bad, stay on course with student loan repayments. They are almost impossible to get dismissed through bankruptcy.

• Student loans are reported to credit bureaus. If borrowers default, it will damage their credit report and FICO score. The FICO (Fair Isaac Corp.) score is a three-digit number that determines the interest rate a borrower will pay on credit cards, car loans and mortgages. It is determined by a borrower’s spending and bill-paying habits as well as overall debt load. Paying bills on time and keeping overall debt load low are key determinants for keeping the FICO score high, which in turn results in low interest rates for the borrower.

• If personal financial situation is dire, contact the lender and ask for a deferment or forbearance. Don’t just skip payments.

• If borrowers have low-interest student loans, they should not rush to pay off those loans. Instead, they should use any excess money to pay off higher-interest debt, such as credit card debt.

• Borrowers with high-interest loans can consider paying them off with lower-rate credit cards.

Source: Suze Orman, author of “The Money Book for the Young, Fabulous and Broke,” Riverhead Books, 2005.

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