8 tips for saving money on student loans

In the rush to enroll in college and pay tuition, many students and parents take the first loan options offered them. While it's understandable to want to quickly fund the educational experience and join the college scene, taking the time to make sure you're getting the best student loans possible can save you substantial amounts of money.

1. Compare student loan options and interest rates

Government-backed student loans are usually your best bet when it comes to borrowing cash for college. A variety of federal student loans exist, including the need-based federal Perkins loan, the more common federal Stafford loan, which comes in subsidized and unsubsidized forms, and the PLUS loan. Interest rates vary widely between loans. Private loan options do exist, just keep in mind that nonfederal loans tend to be riskier investments, according to the Project on Student Debt. Such loans usually have uncapped variable interest rates and fail to offer flexible repayment options and deferment features.

2. Lower your interest rate

Every July 1, Congress imposes a maximum interest rate that lenders can charge on student loans, and the lenders then set their own rates within that limit. This means that interest rates aren't set in stone. Consider the following ways of negotiating a lower interest rate with the lender.

• Set up automatic payments. Many lenders offer reduced rates when your payments are made automatically.
• Make a specified number of on-time payments. Generally, 24 to 48 months of timely payments qualify you for an interest rate cut.
• Earn good grades. Some lenders offer lower interest rates for high marks.

3. Consolidate loans

If you have more than one monthly student loan payment, you can merge your loans and potentially secure a lower interest rate with a U.S. Department of Education Direct Consolidation Loan. Consolidating is often a good option for variable interest rate loans, because the direct consolidation loan carries a fixed interest rate. Before consolidating, consider the amount of time you have left to pay on your loans. If you're close to paying them off, consolidating and taking on another 20- to 30-year loan may not be a good choice for you.

4. Choose the best repayment option for your situation

Several repayment plans exist. The standard repayment plan is a fixed 10-year option that generally carries the highest monthly payoff amount, yet involves the lowest amount of interest paid over the life of the loan. The extended repayment plan is over 25 years with lower monthly payments. With a graduated plan, your payments start out low and increase over time, and income-contingent and income-sensitive plans are based on your income and ability to pay. If your financial situation changes, you can inquire with your lender about switching to a more agreeable plan.

5. Consider tax incentives

Take advantage of your student loans by deducting the loan interest for up to $2,500 a year. As explained in the IRS publication Tax Benefits for Higher Education, you can make the tax deductions for federal and private loans.

6. Use student loan low interest rates to bolster your saving accounts

The especially low interest rates of many student loans makes them such a good deal that you may not want to rush to pay them off. Compare what you're paying for the loans with the interest you can earn through various savings vehicles such as money market accounts and online savings accounts. You may find that it makes more sense to invest in savings and pay the minimum on your student loans.

7. Have your employer pay off your loans for you

In exchange for your loyalty as an employee, some employers will agree to make student loan payments for you as a bonus or in lieu of a raise. The federal government has a formal program for paying employee student loans. According to the U.S. Office of Personnel Management, the Federal Student Loan Repayment Program permits certain federal agencies to repay employees' federal student loans as a recruitment or retention strategy.

8. Choose a helping profession

Individuals who work in a helping profession such as law, teaching, nursing and health care in an underprivileged, socioeconomically challenged area may be able to get their student loans forgiven. The College Cost Reduction and Access Act of 2007 made possible a public service loan forgiveness program that forgives the remaining student loans of public service employees after they've made 120 payments.

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