7 loan tips for new college grads

By SmartMoney

Congratulations, college graduate!

Expect a mailbox full of missives to help you transition from the college campus to the real world: congratulatory cards (with checks enclosed) from family and friends, a few job offers and plenty of enticements from lenders eager to handle your student loans.

Although the first two are certainly more welcome, it pays to spend time considering the latter. More than two-thirds of graduates leave college with student-loan debt, according to the Department of Education. Their average tab: $19,200.

In recent years, as the variable interest rates on the Stafford loan dipped to historic lows of 2.77% (3.37% in repayment) in 2004, student-loan advice for recent graduates could be summed up in a single word: consolidate. Not so for more recent grads, who face current rates of 6.8%.

"The use of consolidation to lock in a low rate no longer applies," says Mark Kantrowitz, the founder of FinAid.org. "Students have to be more proactive about getting the best deal."

Thanks to two recent changes, students face the added burden of mixed loans -- some fixed-rate, some variable, some already consolidated. (Loans disbursed after July 1, 2006, carry a fixed interest rate of 6.8%, while those disbursed prior have variable rates up to a maximum of 8.25%. That date also marked students' last chance to consolidate loans while still in school.)

To get started off right, here are seven considerations for grads:

Mind your grace period

Some borrowers can expect to receive their first student-loan statement before their first real-world paycheck. "We saw a huge wave of in-school consolidations over the past few years, as interest rates moved to record lows," explains Patricia Scherschel, the vice president of loan consolidation for Sallie Mae. "But in doing so, students gave up their six-month grace period."

Not you? Before you gloat, consider joining their ranks. Consolidating before your six-month grace period runs out snags you a lower consolidation interest rate.

Consolidate -- cautiously

But our experts agree: With such high rates, there's less incentive to consolidate your loans this year. "The reasons students will consolidate are more to do with stretching repayment and lowering monthly payments," says Kantrowitz.

It doesn't hurt that one payment to one lender is easier to keep track of than four to different lenders.

With fixed-rate loans in the mix, consolidating may not work out to your advantage. Someone carrying $20,000 in Stafford loans -- $15,000 consolidated at 6.625% and one $5,000, 6.8% loan -- would pay a total of $7,458 over the life of the 10-year loans. That's $100 less than the total interest you'd pay by consolidating all the loans under a 10-year repayment schedule.

Shop around for the best deal

In the Emergency Appropriations Act of 2006, Congress eliminated the "single holder rule," which had required students with loans from a single lender to consolidate with that lender. Take advantage of the switch to let lenders compete for your business, advises Kantrowitz. It pays to do some comparison shopping.

Start by making a list of your loan amounts and lenders (access your loan data here at the Department of Education's National Student Loan Data System), then work your way down the list of lenders to compare offers.

Call your current lender(s) to check the fine print first, says Kantrowitz. It may actually be cheaper to stay put. "Many lenders have included fine print that says you have to repay any discounts if you switch," he says. That includes the 4% origination and default fees assessed at Stafford loan disbursement, which many lenders waive.

Continued: Dig for discounts

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