Top 10 Student Loan Tips for Recent Graduates

Whether you just graduated, are taking a break from school, or have already started repaying your student loans, these tips will help you keep your student loan debt under control. That means avoiding fees and extra interest costs, keeping your payments affordable, and protecting your credit rating. If you're having trouble finding a job or keeping up with your payments, there's important information here for you, too.

1. Know Your Loans: It's important to keep track of the lender, balance, and repayment status for each of your student loans. These details determine your options for loan repayment and forgiveness. If you're not sure, ask your lender or visit www.nslds.ed.gov. You can log in and see the loan amounts, lender(s), and repayment status for all of your federal loans. If some of your loans aren't listed, they're probably private (non-federal) loans.  For those, try to find a recent billing statement and/or the original paperwork that you signed. Contact your school if you can't locate any records.

2. Know Your Grace Period: Different loans have different grace periods. A grace period is how long you can wait after leaving school before you have to make your first payment. It's six months for federal Stafford loans, but nine months for federal Perkins loans. For federal PLUS loans, it depends on when they were issued (see details). The grace periods for private student loans vary, so consult your paperwork or contact your lender to find out.  Don't miss your first payment!

3. Stay in Touch with Your Lender: Whenever you move or change your phone number or email address, tell your lender right away. If your lender needs to contact you and your information isn't current, it can end up costing you a bundle. Open and read every piece of mail - paper or electronic - that you receive about your student loans. If you're getting unwanted calls from your lender or a collection agency, don't stick your head in the sand - talk to your lender! Lenders are supposed to work with borrowers to resolve problems, and collection agencies have to follow certain rules. Ignoring bills or serious problems can lead to default, which has severe, long-term consequences (see tip 6 for more about default.)

4. Pick the Right Repayment Option: When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options, and you can change plans down the line if you want or need to. Extending your repayment period beyond 10 years can lower your monthly payments, but you'll end up paying more interest - often a lot more -over the life of the loan. One important option is the Income-Based Repayment program. It can cap your monthly payments at a reasonable percentage of your income each year, and forgive any debt remaining after 25 years of affordable payments. Forgiveness may be available after just 10 years of these payments for borrowers in the public and nonprofit sectors (see tip 10 below). To find out more about Income-Based Repayment and how it might work for you, visit www.IBRinfo.org.
Private loans are not eligible for IBR or the other federal loan payment plans, deferments, forbearances, or forgiveness programs.  However, the lender may offer some type of forbearance, typically for a fee, or you may be able to make interest-only payments for some period of time. Read your original private loan paperwork carefully and then talk to the lender about what repayment options you may have.

5. Don't Panic: If you're having trouble making payments because of unemployment, health problems, or other unexpected financial challenges, remember that you have options for managing your federal student loans. There are legitimate ways to temporarily postpone your federal loan payments, such as deferments and forbearance. For example, an unemployment deferment might be the right choice for you if you're having trouble finding work right now. But beware: interest accrues on all types of loans during forbearances, and on some types of loans during deferment, increasing your total debt, so ask your lender about making interest-only payments if you can afford it.

If you expect your income to be lower than you'd hoped for more than a few months, check out Income-Based Repayment. Your required payment in IBR can be as little as $0 when your income is very low. See tip 4 for more about IBR and other repayment options.

6. Stay out of Trouble! Ignoring your student loans has serious consequences that can last a lifetime. Not paying can lead to delinquency and default. For federal loans, default kicks in after nine months of non-payment. When you default, your total loan balance becomes due, your credit score is ruined, the total amount you owe increases dramatically, and the government can garnish your wages and seize your tax refunds if you default on a federal loan. For private loans, default can happen much more quickly and can put anyone who co-signed for your loan at risk as well. Talk to your lender right away if you're in danger of default. You can also find helpful information at studentloanborrowerassistance.org.

7. Lower Your Principal if You Can: When you make a federal student loan payment, it covers any late fees first, then interest, and finally the principal. If you can afford to pay more than your required monthly payment - every time or now and then - you can lower your principal, which reduces the amount of interest you have to pay over the life of the loan. Include a written request to your lender to make sure that the extra amount is applied to your principal! Otherwise it will automatically be applied to future payments instead. Keep copies for your records and check back to be sure the overpayment was applied correctly.

8. Pay Off the Most Expensive Loans First: If you're considering paying off one or more of your loans ahead of schedule, or trying to reduce the principal, start with the one that has the highest interest rate. If you have private loans in addition to federal loans, start with your private loans, since they almost always have higher interest rates and lack the flexible repayment options and other protections of federal loans.

9. To Consolidate or Not to Consolidate: A consolidation loan combines multiple loans into one for a single monthly payment and one fixed interest rate. If this is appealing, here are some pros and cons to consider. You can consolidate your federal student loans through the Direct Loan program, and this calculator can help you figure out what your interest rate would be. For private consolidation loans, shop around carefully for a low or fixed interest rate if you can find one, and read all the fine print. Never consolidate federal loans into a private student loan, or you'll lose all the repayment options and borrower benefits - like unemployment deferments and loan forgiveness programs - that come with federal loans!

10. Loan Forgiveness: There are various programs that will forgive all or some of your federal student loans if you work in certain fields or for certain types of employers. Public Service Loan Forgiveness is a new federal program that forgives any student debt remaining after 10 years of qualifying payments for people in government, nonprofit, and other public service jobs.  Find out more at www.IBRinfo.org. There are other federal loan forgiveness options available for teachers, nurses, AmeriCorps and PeaceCorps volunteers, and other professions, as well as some state, school, and private programs (see some examples).

7 Tips for Repaying Your Student Loans

Many college seniors, who are on the verge of graduating, probably thought this day would never arrive.
I'm not talking about their graduation day. I'm referring to the time when they would have to start repaying their student loans. With the economy still in a funk and unemployment remaining high, this is a scary time to be contemplating all that student debt.

The typical student who graduated in 2009 and borrowed for college finished school with an average debt of $24,000, according to a report from the Project on Student Debt. I'd argue that this amount isn't bad when you consider that, in return, the borrower has received a college degree.
[Read 6 savings tips for college graduates.]

Regardless of how much graduates owe, they need to make sure they play it smart when they begin repaying their loans. Here are seven things they need to keep in mind:

1. Repay your student loans automatically: Missing payments can get you into financial trouble, but it's very common. According to Fastweb, 25 percent to 33 percent of borrowers are late or delinquent with their first loan payment. Setting up payments automatically through your bank account should dramatically reduce the chances of late or missing checks.

2. Aim for 10 years: The traditional repayment period for student loans is 10 years and ideally you'll be able to pay off all your debt within that time period. If you end up struggling with your monthly payments, however, you could stretch out your loans to 20 or even 30 years. Your monthly payments will become more manageable, but you will end up paying a lot more in interest.

Here are examples that illustrate the extra interest you'll pay by extending your loan. Let's say you owe $24,000 in federal Stafford Loans at 6.8 percent interest. If you pay over 10 years, you will cover $9,143 in interest. Lengthen the loan to 20 years and the interest tab will jump to $19,969. And if stretch your loan out 30 years, you will face interest of $32,328.

You can do your own math with a loan calculator, such as this one from FinAid.
[Get tips and tools for managing student loans.]

3. Stay organized: If you have multiple student loans it can be a challenge to keep track of them. It's easy, however, if you use the government's National Student Loan Data System, which tracks all your federal student loans.

4. Pay off the loans with the highest interest rates first: Luckily, you won't get penalized for speeding up the repayment of a student loan. Consequently, you'll want to use any extra cash to pay off the loan with the highest interest rate first.

5. Consider IBR: If you're struggling with your loans, a potential option is the federal Income-Based Repayment program. Essentially, the IBR program allows a borrower to repay his or her federal loans based on what's affordable rather than what is owed. This option allows your monthly payment to be capped at 15 percent of your discretionary income.

6. Keep abreast of student loan developments: I'd recommend that you occasionally visit two websites devoted college debt issues that could directly impact you: Project on Student Debt and the National Consumer Law Center's Student Loan Borrower Assistance Project.

7. Contact the Federal Student Aid Ombudsman: If you end up in a dispute with your lender, the Federal Student Aid Ombudsman may be able to help resolve the problem. You can reach the ombudsman by E-mail at fsaombudsmanoffice@ed.gov.

 

How Student Loans Work

1. What is a Student Loan?

   • A student loan is a sum of money that is borrowed to pay for higher education costs. There are several different types of student loans to suit various need and income levels, and each loan type has a yearly maximum borrower amount. Many students get a mix of federal and private student loans, although some are able to cover all expenses under the government program.
     

   How to Apply for Government Loans

   • It's free for students to apply for government loans. The student, along with the parents, guardian or spouse, fills out a form called the Free Application for Student Aid, or FAFSA. Students must fill out a new FAFSA every year they attend school. The government compiles the information into the SAR, or Student Aid Report, and sends this financial aid information to the desired schools. This document lists the FAFSA information and all loan types the student qualifies for.
     

   The Financial Aid Package

   • After the college receives the SAR, it compiles a package using the information. The college figures out the minimum family contribution as well as whether the student is eligible for college-run loan programs. The package will include all types of loans the student qualifies for, plus the amount available. This amount may be lower than the maximum allowed by law; the student may take out a loan up to the government's top amount to cover books, housing and living expenses.
     After school starts, the loan is wired to the school and deposited into the student's account to pay his tuition costs. Any excess is issued in the form of a check.
     

   Loan Types

   • Most students are offered the Stafford loan, which is a direct, low-interest loan from the government to the student. Stafford loans are also available through private lenders. The Perkins loan is for students who demonstrate severe financial need and is usually accompanied by government grant money because of the low-income threshold. These loans must be repaid, with terms that stretch over 20 years, if necessary.
     

   Repayment

   • Student loan repayment begins from 6 (for Stafford) to 9 months (for Perkins) after a university confers a degree. If the student hasn't found work by that time, she may receive a forbearance or deferment to a later date. Additionally, if a student exits a program or reduces class hours to below half-time, he must begin repayment. Loans that go late or fall into default are referred to collection agencies. However, government loans that default may be fixed and redeemed once during the course of repayment.
     

 

How Student Loans Work From Start to Finish

Student loans are a way to pay for higher education. Whether you love debt or you hate it, student loans are an investment in your future. They can make an education possible when there is no other way. This page covers the basics of student loans and points you towards additional resources.

Student loans are unique because they have some special features. You often get an attractive interest rate, and almost any student can borrow some money – regardless of income or credit history. Student loans offered through government programs tend to be the most attractive.

• Advantages of Federal Student Loans
• Private Student Loan Basics - Compare to Government Loan Programs

To get a student loan, your first step is to fill out the Free Application for Federal Student Aid (FAFSA). You should submit your FAFSA as soon as possible – you can make estimates and correct the details later. Once you’ve completed your FAFSA, you’ll want to visit your school’s student aid office. Ask what kind of aid you might expect.

• What is the FAFSA?

So that you’re prepared, familiarize yourself with some of the most common student loans:

• Perkins Loans should be a first choice because of their low interest rate
• Stafford Loans are easy to qualify for, and the interest charges may be subsidized for some time
• PLUS Loans allow parents to borrow very large dollar amounts so that you can cover all your costs

You can postpone repayment of your loans under a variety of conditions. This is called a deferment. While you’re in school, for example, you may qualify for an in-school deferment. When you’re in a tough financial spot you can often temporarily stop paying back your loans without any penalty or damage to your credit.

• How Deferments Work

After you’ve finished your education, expect to pay those loans back. Most often your lender will set up an amortizing repayment schedule. If you’ve taken several loans over the years, you may want to consider consolidating your loans. Student loan consolidation has some unique benefits that you can’t find in any other type of loan.

 

What Are Your Options When Your Student Loans Go to Collection Agencies?

If you stop paying a private student loan, your lender will almost certainly turn your delinquent account over to a collection agency. The federal government, although endowed with greater debt recovery options than any private lender, also uses collection agencies when collecting unpaid education loans. You have several options to choose from should a collection agency contact you about your defaulted student loan.

1. Pay In Full

   • Regardless of whether you owe a private or federal student loan, your debt remains valid until you pay it in full. Because student loans carry interest charges, the Fair Debt Collection Practices Act allows collection agencies to continue adding interest and fees to the account the longer it remains unpaid. Your best option, if you can afford to do so, is to pay off the student loan in full. Even if you cannot afford to pay off the entire balance at once, contacting the collection agency and negotiating affordable monthly payments help you avoid more aggressive collection activity, such as a lawsuit.
     

   Settle the Debt

   • One of the primary tools in a collection agency's arsenal is the ability to offer consumers debt settlement programs. A settlement program allows you to pay off the defaulted debt for less than the total balance you owe. The U.S. government typically refuses debt settlement offers on federal student loans because of its ability to force you to pay through garnishment and intercepting your tax refunds. Private student loans, however, do not possess the same collection powers as the federal government, and a collection agency representing a private lender will often be more open to a settlement offer. Even though you cannot settle a federal student loan, you can request that the collection agency eliminate excess fees and interest charges.
     

   Dispute the Loan

   • In certain situations, you can dispute your responsibility for repayment and have your student loans discharged. Each private lender has its own requirements for a liability discharge that should be stipulated within your original loan contract. Even if a collection agency is responsible for your loan, you can contact the U.S. Department of Education directly and dispute your responsibility for repayment of a federal student loan. The federal government will discharge your liability if you never applied for the loan, you suffered a permanent disability or your school closed before you were able to obtain your degree.
     

   File for Bankruptcy

   • Contrary to common belief, bankruptcy is an option for some individuals when faced with a defaulted student loan in collections. If you can prove that making payments to the collection agency would deprive you of a minimal standard of living and that your financial circumstances are not likely to change, you can file an undue hardship petition with the court. The bankruptcy judge is ultimately responsible for deciding whether or not your financial distress is severe enough to merit discharging your student loans through bankruptcy.
     

Deciding to expand my life after college in another country was a big decision and one that has challenged me financially and intellectually. As I packed up and left the good old U.S. of A. for law school on the other side of the pond (where lawyers sometimes wear wigs), I attempted to put my plethora of federal student loans into in-school deference or forbearance. Five separate enterprises own a piece of my undergraduate education totaling $50,000 at the time. Four of the companies put my loans into various types of in-school and hardship forbearance. The one that wouldn’t budge, however, was my Alma matter holding tight to my $3,000 Perkins loan and those $43.23 per month payments.

When a Student Loan Goes to Collections

Not only did I not have an extra $43.23 per month at that time but I didn’t even know how to transfer money from London to Boston in any way that didn’t attract at least $50 in fees. My deferments kept getting denied until the loan ended up in collections. If you’re familiar with a certain type of person from South Boston (think of the movie The Departed) and combine that with the evils of a third-party collections company, you can imagine those phone calls. They told me that they didn’t care where I was in law school; I needed to pay. And by the way, the loan had doubled in size, and I now needed to pay $6,000. Yesterday.
I used every skill they’d taught me in law school to refuse to speak to “Mark Wallburg Collections Co.” and instead spent Christmas break 2007 on the phone in a screaming match with the head of loan collections at my former college. According to him (but not the other four student loan companies), the fact that I went to a law school overseas prohibited me from getting an in-school deferment period. Furthermore, since I wasn’t paying U.S. taxes as an overseas student, I couldn’t prove that I was economically unable to pay. So, tough luck. Pay $6,000. Now.

How I Fought Back

I then used the public relations skills that I had learned at an internship (set up through that very university) to draft a press release outlining the way I had been treated and the various federal loan reporting laws they had broken. I went through old contacts and planned to send copies to everyone and anyone I could think of in Boston. I figured if it was a slow news day, the Boston Globe might pick it up as an interest piece. They love stories of how the Colleges in Boston screw over students.
But first, I showed my masterpiece to Head of Collections at my college and magically, my loan was put into in-school deferment—retroactively—and all charges and interest over the past year were removed. Sadly, it remains the most profitable piece of writing I’ve done yet (approximate value: $3,000)!

Repaying the Loan

When I finally started working as a lawyer and trying to change the path of my financial life through my blog Savings Not Shoes, I added the loan to the list of debts and it’s currently top of my list getting payments of between $500 and $1,000 per month. “Knee-Breaking Collections” is still on my credit report, which is annoying, but doesn’t really affect me as I am totally anti-debt these days.

You’ll imagine my surprise my college’s alumni association approached me and asked me to lead a new U.K. Alumni Club. It was finally time to try and make up for Christmas ’07. I told the association that I would have been privileged to lead their overseas chapter in the U.K., if only I’d been treated with decency by the college’s student loans office when setting up my life over here, so I’d have to decline.

Now the alumni association has brought new life into my old tale of collections and woe. My goal is that it doesn’t happen to other students who perhaps didn’t learn as much in college—like writing press releases and having contacts on the Boston City Council.

Their veracity has impressed me enough to stop by when I’m in Boston at the end of the month and to go out to lunch with the alumni association. More importantly, I’m swinging by the loan office and giving them the remainder of the payoff amount for my loan…in person, and with a smile.