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Tips for repaying student loans
Be smart about paying off education debt.
By Andrew Housser
The average student loan debt for recent college graduates is close to $30,000. During the first five years after college, four out of 10 borrowers become delinquent in repaying their student loans. This can lead to extra fees and interest costs, as well as a major hit to one’s credit rating. If you are a college graduate who is struggling to keep up with payments, these tips can help.
Understand the terms of your loan(s).
Chances are, you have more than one loan with different lenders. As a result, your options for loan repayment will vary. The U.S. Department of Education’s
provides loan amounts, lender information and repayment status for all government-funded federal student loans. Private student loans are financed through a bank, credit union or other nongovernmental lender. Private lenders set their own interest rates, loan limits and other conditions. You will need to contact your private lender directly to obtain full details on the terms of your loan.
It is challenging to keep track of multiple loan payments. Consolidating your student loans will create a more convenient single monthly payment. Consolidation does increase the term of the loan and the amount of interest paid over the life of the loan. However, by extending the repayment term, it can reduce your monthly payments by almost half.
Figure out your repayment plan.
Some loans have a grace period of six to nine months before the first payment is due. Depending on the loan type, interest may or may not accrue during this period. Having a little bit of breathing room after graduation can be helpful as you find and start a job. However, it also makes it easy to forget that a payment is due. Up to a third of borrowers miss their first student loan payment. Your credit rating can take a hit with just one missed payment. Automatic payments set up through your bank checking account can ensure you meet your financial obligation each month. Some lenders offer discounts for these automatic debits, too.
Do not default.
Should you find yourself unable to make loan payments due to a job loss or other circumstances, it is always better to work with your lender to find a repayment solution than to default. Penalties for defaulting on student loans can be severe. They can include garnished wages and Social Security benefits, and government retention of tax refunds. In addition, you may incur late fees and collection charges. Instead of defaulting, consider these other options:
If you qualify, you can temporarily halt payments on the loan principal by applying for a loan deferment with your lender. During this time, the federal government will pay the interest on subsidized federal student loans, but not unsubsidized loans.
A forbearance allows you to temporarily modify your loan terms by stopping or reducing monthly payments, or extending the repayment time period. Depending on your situation, you may or may not have to pay interest on the loan during a period of forbearance.
Loan forgiveness programs eliminate loan balances (and payments) for people who meet certain criteria. These include working in eligible public service positions, such as in law enforcement or public health; military service; volunteer work; and teaching or practicing medicine in a low-income, rural area.
In extreme cases, such as disability, you may be able to get your loans discharged.
If you are still in school, make sure you complete an exit counseling session with a financial aid officer at your school before your graduate. This representative will review the terms and conditions of your loans, including repayment options and your rights and responsibilities. This is the time to ask questions and map out a plan for repayment. Then you can focus on the really important tasks like landing that dream job and starting your bright future.
|Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.|