Over the last two years, I have received more questions about student loans than I got in the previous two decades combined. The reason is brutally simple: Not only is college more expensive than ever, but because of the recession, it's also the hardest time in decades for college graduates to find decent employment -- and thus earn the money they need to be able to pay off their loans. This financial double-whammy is crushing a generation of young people under a mountain of debt.

According to the most recent U.S. Department of Education statistics, two out of every three students who graduated from college in 2008 financed their education at least partly with student loans, with the typical borrower starting out their working life owing around $23,000. In 2009, the total amount of federal student loans outstanding topped $605 billion.The private student loan market is a largely unregulated "wild west" market, but experts figure it accounted for another $300 billion or so -- bringing the grand total to around $1 trillion.

And with this in mind, let's look at how you should borrow money for school -- and ultimately pay off those loans so you can get on with finishing rich!

1. Get the Facts and Understand the Problem.

In the past I have argued that student loans are not only a good investment but also that they are a more intelligent form of debt than, say, a bank loan you might take out to buy a car. But in recent years, I have begun to see some problems with student loans.

To begin with, people who borrow money for college often don't really understand what a serious commitment they are making. It's generally easier to get a student loan than it is to borrow money to buy a home or a car or get a credit card -- and yet student loans are the most difficult loans to get out of if you get into financial trouble.

Another problem is that an increasing number of people are being forced to take out private student loans, which generally have variable interest rates (meaning they can get more expensive) and are virtually impossible to refinance.

And perhaps most troubling of all, the value of a higher education simply isn't as much of a "sure thing" as it used to be. When you borrow money for school, you're betting that you will be able to afford to pay back the loan after you graduate. But these days, with unemployment high, many college students wind up graduating into a world of no income -- and lots of debt.

2. Know What Kind of Loans You Have.

There are two types of student loans -- government and private. Before you can start evaluating the repayment options, you need to determine which kind you have. If you're not sure, check the paperwork: If there's any reference to a Stafford Loan, Perkins Loan, Federal Direct Loan Program, or the Federal Family Education Loan Program, congratulations! You have a government loan, which means you are eligible for a number of different repayment options. This is not the case with private loans. With them, you're basically stuck with the repayment terms that you agreed to when you took the loan out.

3. Understand Your Repayment Options.

If you have government loans, you are eligible for two standard repayment plans. The 10-Year Plan is the default option. You make fixed payments each month for 10 years, and at the end of the decade, your loan is paid off and you own your diploma debt free. You can also opt for a 20-Year Plan, which will stretch out your repayment period. This will lower your monthly payments-but it also will increase the amount of interest you'll pay over the life of the loan. Since your goal should be to become debt free for life, the 10-year plan is generally your best option.

Let's plug in some real numbers to see if this makes sense. Imagine two students who both paid for college with $25,000 federal Stafford loans:

  • Student A chooses the standard 10-year repayment plan. As a result, he'll have to make monthly payments of $287.70 for 10 years, at the end of which he'll be debt free. In all, he will have paid a total of $34,524.14, of which $9,524.14 will have been interest.
  • Student B chooses the extended 20-year plan. Her monthly payments will be only $190.83. But after 20 years, she will have paid a total of $45,801.70, of which $20,801.70 will have been interest.

In other words, opting for the 20-year repayment plan increases the total amount you will end up paying by roughly a third -- in this case, more than $10,000. This is not a good way to get rich!

4. Consolidate Your Loans.

Most students who borrow take out multiple loans from multiple sources. Once you graduate, it can become something of a nightmare to keep track of all these loans. This is why most students choose to consolidate their federal loans. (Private student loans are in their own separate universe and cannot be consolidated with federal loans.) Consolidation not only combines all your obligations into one monthly payment, it also cuts down on the paperwork. What's more, there is never a fee for consolidating federal loans and you can choose to extend your repayment term.

While students with federal loans can consolidate with any lender, it is always a good idea to consolidate into the federal direct loan program. That's because there are some loan forgiveness programs that are open only to people with federal student loans.

5. Learn the Difference Between Deferment and Forbearance, and Investigate Loan-Forgiveness Programs.

The official government website for federal student aid, Student Aid on the Web , defines a deferment as "a temporary suspension of loan payments for specific situations such as re-enrollment in school, unemployment, or economic hardship." If you have subsidized federal loans, this can be a very good deal, since interest will not accrue during a deferment. However, if your loans are unsubsidized, interest will accrue.

If you don't qualify for deferment but are experiencing financial difficulty, you can apply for forbearance, which will temporarily postpone or reduce your payments. The catch here is that interest will continue to accrue even if your loans are subsidized. Most private student lenders also offer forbearance and deferment options, but there are no uniform policies governing private student loans and you are completely at the lender's mercy. Check with your lender to find out your options.

If you qualify for a loan forgiveness program, whatever balance remains on your loan will be wiped out without penalty. One of the best-known loan-forgiveness programs is for federal employees. If you work for the federal government for 10 years and make 120 on-time monthly payments, any remaining balances you owe on federal student loans will be forgiven. Many states offer their own programs that help public employees pay off their student loans, but a word of warning: These programs can quickly evaporate in times of financial crisis. You can learn more about loan-forgiveness programs on the FinAid website.

6. Ditch Your Loans ASAP (Especially Your Private Ones).

The fastest way to get rid of student loans is to live beneath your means and pay them off as quickly as you can. If you've got private loans and you want to have any chance of finishing rich, it is imperative that you move paying them off to the top of your list of financial priorities.

This is why: the adjustable rates on private loans make them ticking time bombs. If you have both private and federal loans, I believe you should make paying off the private loans your first priority -- even if the interest on your federal loans is higher. If you have a mix of private and federal loans, use IBR (income-based repayment) or an extended payment plan to keep your federal loan payments as low as possible and throw all the money you can at your private loans. They're that dangerous.

7. Don't Forget to Deduct Your Interest Costs When You File Your Taxes.

Don't overlook the income-tax deduction on student loan interest. This deduction is calculated as an adjustment to income, so unlike the home mortgage interest deduction, you do not need to itemize your deductions in order to qualify for it. Assuming you're in a 25% tax bracket, this deduction could save you as much as $625 per year.

8. Think Before You Borrow.

If possible, keep your borrowing to the absolute minimum and never, ever take out any private student loans. Don't sentence yourself to a lifetime of indentured servitude in pursuit of a sweatshirt with a nice name on it. This may sound harsh, but student loans should cover only a small portion of your college costs. There are plenty of other, better ways to pay for college -- savings plans, scholarships, and part-time employment. Remember, people have been working their way through college for as long as they've been giving out degrees.

9. Do your Homework and Shop Around For the Best Loan.

There are a mind-numbing variety of programs, each with a mind-numbing set of rules and conditions. The difference between the wrong loan and the right one can be the difference between a miserable life and a great one. Here are some tips on where to go for information and help:

Federal Loans

The best information will come from the school you are looking to attend. Reach out to the student-aid department for information about the various programs and how to apply.

Private Loans

There isn't a better resource for information and advice on private loans than FinAid. This website contains everything you need to know about borrowing money for private student loans. But as I mention above, tread carefully before loading yourself up with private loans.


FastWeb bills itself as "the leading scholarship search provider for every student, whether you're in high school or a mother of two returning to school," and with 34 million users, the boast is probably justified.

Before you start your studies, do your homework: get a student loan education and explore all your options before you borrow. And to find more student loan tools, info and to read real success stories from people who found student loan freedom, go to finishrich.com.

Increase your money and finance knowledge from home

Intro to Retirement

Get started early planning for your long term future.

View Course »

Building Credit from Scratch

Start building credit...now.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Good Day,
My Name Is Davidson Velze I want You all To be careful there.nobody can help you here or even suggest how you can get financial help.any answer of a loan lender to your question,you MUST ignore,because they are SCAMS…real SCAMS…i was a victim of which i was ripped thousands of dollars….Well thank God for a Christan Loan Officer,I was referred to by my cousin,who is by name,Mr.John Hawkins Loan Firm Inc.They made my life a valuable one,and gave it a meaning.I was approved loan of $25,000.00 USD AND IN 3 HOURS after meeting up to their necessary requirements,my loan was deposited in my bank account.Though I was very nervous with the loan firm at the first place due to my previous bad experiences,especially when the issue of me settling the transfer charges came up,I hold on to my faith due to the fact that my relative referred me,got it cleared,and as God should have it.little did I know that my financial shortcomings has come to a final HALT .If not for that quick referral from a relative of that genuine source ,I would have regretted my total life,because at that point in time I just divorced the father of my Son,and my daughter (Peter) was faced with a ” between life and death ” situation ..I was faced with her hospital bills and was also faced with foreclosure at my apartment.Details of the GOD SENT and RELIEVING source won’t be disclosed to you for now, for fear of impersonation ( because it has being discovered that some persons are not really in need of financial help,but are there to impersonate real loan lenders through their phone numbers and email accounts,and acting to be them where necessary to those in real need)…I couldn’t comment on your post because it was a public place and I fear you would fall into the hand of all these fraudulent loan officers (even in US) like how they ripped me off.You must be able to convince me real hard,and provide good proofs,before I can give you the full details of this legitimate loan officer..Their charge is very affordable and reliable compare to many out there,their interest rates just 2.5%,little documentation,and little credit check(irrespective of your credit score,but you MUST have a good and liable income source) His Name is Mr John Hawkins Feel free to email him at his via Email:johnhawkinsloanfirm@yahoo.com” and you will be free from scams. thanks as you read the greatest testimony of my life.

Davidson Velze

January 16 2014 at 5:05 AM Report abuse rate up rate down Reply

My Name Is Mrs.Lisette Robinson Garrett From Canada, An X-Scam Victim and how i get back on my feet and be a personal business owner with cars and landed properties…. This is to announce to the general public about a legitimate lender online.


I was in a critical search of a genuine loan lending company were i can obtain a loan of $180,000.00USD some lender’s that Came to me sheep clothing i never know they where fraud until i was given the terms of their loan and i agreed eventually i was scammed they scammed me of my hard earn money up to four lender’s that scammed me the sum of $27,000.00USD and i though that all is over that there can never be any other genuine lender until my Husband’s Friend Mr. Garrett Lugard the general manager of Cotsat and cotsat company told me that there is a genuine lender that he obtained a loan of 1.5 Million Dollars At 3% interest rate From that makes him own a private business and a house of his own he Referred me to a company Mr Potter Mark Loan Company ,E-mail:juniorloancompany.link07@yahoo.com Where he obtained the loan of ($1.5 million Dollars) i told them how referred me to them i applied for a loan of $180,000.00USD after my application and i sent to them the useful information for them to process my loan after 4hours i received a notification From their company that my loan has been approved and processed in the next 4hours my loan of $180,000.00 Dollars was transferred into my account. And i promise them for coming to my rescue i am going to spreed the good news to the entire world ABOUT JUNIOR LOAN COMPANY IS THE BEST IN THE WORLD.

And tell them i Mrs.Lisette Robinson Garrett referred you to them and your wish will be fulfilled…

February 06 2013 at 7:23 PM Report abuse rate up rate down Reply
Jared Hughes

Paying back student loans can be a hassle. There are alot of do's and dont's. I read a good article about student loans on this great college informative website, check it out: http://www.parentsandcolleges.com/blog/?Tag=paying+down+student+loans

July 31 2012 at 1:47 PM Report abuse rate up rate down Reply