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Student Debt: Consolidation and Repayment
For starters, I always like to remind myself that although my student debt is a bit alarming, it was a good investment in the long run. Many of you, like myself, have a pile of debt from college that you're about to begin paying off. Of course, the idea of writing that check every month is mildly upsetting, but don't let it get you completely down. After all, someone with a college degree, on average, has the potential to earn double the amount of someone who only has a high school diploma. Plus, with the advice and tips in this article, it should help make the process a whole lot easier and certainly less daunting.
Thinking about repayment
If you're like many college students, you have a variety of different loan types by the time you graduate. The most common is likely to be the Federal Stafford loans. Many of you, since you've been in school, probably haven't begun paying anything towards those loans. That's okay. There is a small downside, however, if you didn't qualify for all subsidized loans. It means you likely have some unsubsidized ones that have been incurring interest.
Luckily, after you graduate, students are given a six-month grace period before they are required to begin paying back loans. This gives you some time to adjust to life outside of the university and hopefully find that job you've been hankering to get ever since you started your degree program. It's very important that you begin paying back those loans within the six-month grace period as you do NOT want to default.
So, your six months is up and it's time to start writing those checks, but in the process of moving, you've lost all of your loan paperwork. Not to worry, if you've searched high and low for your paperwork and can't find it, head over to www.studentclearinghouse.org — click on "Students & Alumni" tab to gain access to the loan locator or <http://www.nslds.ed.gov/>. These sites will help you find it.
While you are given a six-month grace period, a deferment is always an option. A deferment means that you will be given a further delay before you must begin repaying your loans. As was the case with the unsubsidized loans, however, these loans will still incur interest. Before you are granted a deferment, you must qualify. A few circumstances that would qualify you for a deferment on your Stafford loans are, you become disabled, you go back to school, you join the Peace Corps, you are unemployed, or you teach underprivileged kids. There are others, but those are the most common.
A forbearance can be obtained to those who not qualify for a deferment. In this case, however, all loans will incur interest regardless if they are subsidized. Simply contact your lender for details on obtaining one if you feel that this is an option you must pursue.
Consolidating your student loans locks your loans into a fixed interest rate for the duration of your repayment process and protects you against future increases in interest rates. Consolidating, however, could affect your ability to qualify for a deferment or even a full forgiveness on your Perkins loans.
School loans that are eligible for consolidation include:
- Federal Stafford loans — subsidized & unsubsidized loans in the Federal Family Education Loan Program and Direct Loan Program
- Federal PLUS (parent) Loans
- Federal Family Education Loan Program and Direct Loan Program
- Federal Perkins or National Direct Student Loans (NDSL)
- Federal Insured Student Loans (FISL)
- Federal Supplemental Loans for Students (SLS)
- Federal Nursing Student Loans (NSL)
- Loans for Disadvantaged Students (LDS)
- Health Professions Student Loans (HPSL)
- Health Education Assistance Loans (HEAL)
If you have loans from private lenders, feel free to contact them and inquire about alternative repayment options.
Student Loan Payment Plan
After consolidation, you must choose a payment plan, and it will depend upon how much you are willing to fork over each month. The standard plan starts as low as $50 a month and can take ten years to repay. An extended payment plan with a minimum payment of $50 a month is also available, (under certain circumstances) but it can take upwards of thirty years to repay the loan. In the end, your goal is to pay off your student debts as quickly as you can to avoid paying copious amounts of interest. And remember, regardless of what payment plan you end up choosing, you can always pay it off early if circumstances change down the road.
Example of a payment plan with a fixed 7.14% interest rate on a $35,000 loan:
- 10 years — $409 monthly payment — $14,069 interest
- 20 years — $274 monthly payment — $30,834 interest
- 30 years — $236 monthly payment — $50,013 interest
Obviously, the length of your payment plan drastically affects the amount of interest you will end up paying out over the life of the loan.
Tips on Student Loans
- You can shop around at banks, credit unions, and other loan sources before you consolidate.
- Look for the lowest rates!
- Having your loan payment automatically debited from your account can come with financial perks, and save you as much as .25% on your interest rate in the long run.
- Student loan interest — up to $2,500 — can be deducted from your federal taxes if you make less than $50,000 a year.
- Remember, even if you decide to declare bankruptcy, you will still be responsible for your student loan debt.
Orman, Suze. The Money Book for the Young Fabulous & Broke. New York: Riverhead Books, 2007.