Student loans are a great investment when continuing your education so it’s important to know the different kinds that are available and the strategies for dealing with them.

According to data from Lendingtree.com, more than 2/3rds of graduates – from both public and private institutions – have student loans and it’s something that affects many Americans.

For parents and grandparents of current college students, there are a few different kinds of student loans to understand. These fall into four categories: Subsidized, Unsubsidized, PLUS loans, and private loans.

When it comes to Federal loans, there are essentially three kinds. Subsidized are only applicable to undergraduates with demonstrated financial need. Unsubsidized loans are not tied to financial need, and are available to all undergraduate, graduate, and professional students. PLUS loans are available for graduate and professional students, as well as the parents of dependent undergrads. Subsidized and unsubsidized federal student loans don’t require a credit check, and you are able to secure them simply by signing a form indicating that you will pay them back. However, PLUS loans and private loans will require a credit check.

Private loans come from banks and other financial institutions who lend directly to students and their families.  These are similar to any private loans, in that they’ll require a credit check, and the lender will want to see proof that you are able to repay these loans.

Once you’ve graduated and have a job, you may be in a position to consider either consolidation, if you wish to keep federal protections, or refinancing, if you wish to combine your loans and keep them with a private lender. There are pros and cons to each, so it’s important to carefully consider which is best for you.

If you have multiple federal student loans, you may be able to consolidate them into one loan with a fixed rate. Generally speaking, they use the average interest rate of the loans being combined. This can save you money with a lower average rate overall, and gives you the convenience of a single payment. Consolidation also lets you keep federal protections – like loan forgiveness, forbearance in the event of financial hardship, or the use of income-driven repayments. Usually with federal loan consolidation, you can alter your payment plan if something changes with your finances. However, generally you’ll pay a higher interest rate than you will if you were to refinance with a private company.

If you do choose to refinance with a private company, you can have the same convenience of a single payment, and often save money both monthly and over the life of the loan with a lower interest rate. But, as I mentioned, you’ll lose federal protections, and possibly some of the flexibilities generally available through federal plans. So, it’s important to really understand the details of your new loan.

Whether you choose to federally consolidate or privately refinance, there are a few strategies that can help you save money and pay off your loans faster.

First, enroll in autopay – the government or private lenders may offer incentives in the form of discounts to ensure they’ll receive a monthly payment this way.

Second, make extra payments the right way. Making an additional payment will generally get applied to the next bill – unless you instruct your servicer or bank to apply the overpayment to your principal, which helps pay down your overall total.

Finally, use money from gifts, raises, and bonuses to help pay down your balance faster.

Hopefully, these will help you better understand and pay down your student loans. If you have questions about your student loan strategy, or just want a second opinion, give us a call, we’re here to help!