Time To Save On Student Loans

Ray Martin Explains How To Lock In A Low Rate Now

(CBS) 
While loan consolidation, for those who qualify, seems like a no-brainer, the repayment plan requires a little more thought. When deciding, consider this advice:

Let’s say your consolidated loan is $18,000, at a fixed rate of 2.875 percent. If you choose the standard repayment plan, for 10 years, your monthly payment will be about $173 and you will pay a total of $20,733 over the life of the loan.

If the higher payment required to pay off your loan over 10 years cramps your cash flow, leaving nothing to pay down credit card debt, to save for a house, or to contribute to an employer’s retirement plan, consider this instead:

Choose the extended repayment plan over 20 years; your monthly payment will be $99, or $75 per month lower. You will pay a total of $23,683 over the life of the loan, or about $3,000 more than the standard plan. Assuming you take this advice and contribute the $74 per month into an employer’s retirement plan, and your employer matches your contributions with an additional $37 a month, you could accumulate a retirement plan account of over $51,000, after 20 years, assuming a 6 percent annual rate of return.

Doing the math, you could come out over $48,000 ahead. The same concept applies to paying down high-interest credit card debt. This should be done before contributing to any retirement plan other than those matched by an employer.

If later your income rises and your cash flow allows it, you can always pay off your student loans at any time, without penalty.