7 loan tips for new college grads

Dig for repayment discounts

Making your student-loan payments electronically saves much more than a 42-cent stamp each month -- it also gets you a 0.25% reduction on your interest rate from most lenders. Whether you plan to consolidate your loans or not, be sure to consider repayment discounts when selecting a lender, says Kantrowitz. Depending on the lender, you may be able to reduce your balance outright or reduce your rate by an additional 1% or so for making on-time payments.

"Focus on discounts that are immediate in nature and that you can't lose," he advises. Discounts that take time to earn, such as making a set amount of payments on time, are worth progressively less the longer they take to kick in. They are also tougher to earn. "Less than one-quarter of students make their first 36 payments on time," Kantrowitz says. One missed or adjusted payment and you're right back at the starting line.

Keep private loans separate

Federal Consolidation Loans, by definition, can include only federal student loans. So steer clear of lenders that offer to let you consolidate both federal and private, cautions Brad Baldridge, a certified financial planner in Hales Corners, Wis. These hybrid loans won't be as low and don't often carry repayment discounts.

And keep in mind, the rate is tied in part to your credit score. Late payments on that credit card could send your rate skyrocketing.

Prepay your loan . . .

Sure, you can lower your monthly student-loan payment -- consolidation is one way, extended repayment another -- but that short-term relief comes at a price, says Susie Johnston, a certified financial planner in Greenwood Village, Colo. You'll make payments over a longer period and ultimately pay more in interest. Someone with $15,000 in Stafford loans would pay about $5,714 in interest repaying them over 10 years. Consolidated under a 20-year repayment schedule, the interest paid more than doubles to $12,480.

If you take steps to lower your payment, aim to increase it again as soon as possible, says Johnston. "There is no penalty for prepayment."

Ideally, you should aim to make your original monthly payment, but even an extra $10 a month helps. (In the case above, it would help you pay off your consolidated loan three years sooner, and cut your total interest paid by nearly $2,000.)

. . . But put credit card bills first

"Prepaying your student loans seems the right way to go, but it isn't always," says Baldridge.

The math is simple enough: A credit card with an 18% annual percentage rate accrues more interest, faster, than a 6.8% Stafford loan. Tackle your more expensive debts before beefing up your student-loan payment.

This article was reported and written by Kelli B. Grant for SmartMoney.

Updated Dec. 3, 2008

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