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Your college diploma is a little piece of paper
with a big impact on your financial future. Unfortunately,
so is your student loan promissory note.
Now that you've graduated, it's time to pay the piper
for the loans that have been putting you through school all this
time -- and playing dumb or pleading ignorant isn't going to cut
you any slack. Here's what you need to know to pay back what you
owe and protect your financial future.
Figuring Out What You Owe
Most federal loan programs offer a grace period of between six and
nine months after graduation before your repayment period begins.
During that time, you should get a certified letter reminding you
of your student loan responsibilities and spelling out a repayment
schedule. Not getting a letter doesn't mean you're off the hook;
you'll still be held responsible for missed payments, which can
negatively affect your credit rating down the road.
Get ready by boning up on what kind of loans you have,
who your lender is, how much you owe, how long you have to pay it
back, what you should be paying each month, and what fees you're
responsible for. To find out where you stand:
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Dig up all the paperwork
related to your loan,including the promissory note you
signed at the beginning. Ask your parents, who may have been
smart enough to file it all away. |
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Log onto the National
Student Loan Data System. By entering in some personal
information and your Department of Education PIN number, you
can access a list of what you owe on all your federal student
loans. (Note: If you don't have a PIN already, you may request
one at the site.) |
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Contact your university's
financial-aid office. Government regulations require
you to receive exit counseling from your school's financial-aid
office if you have federal student loans. Bypass any online
options in favor of an in-person visit. A counselor will be
able to provide information on private, nonfederal loans that
have been disbursed to you through the university so that you
can get in touch with your lender. |
Picking a Repayment Plan
Although your student debt is just as serious as, say, your electric
bill or your rent, you generally have more flexible options for
repayment. Before your grace period ends, work with your lender
to find the easiest plan to pay back what you owe without going
broke:
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Standard repayment. The
most direct method of paying off your student loan, a standard
repayment plan expects you to pay a fixed amount, at least $50,
each month. You'll also have up to 10 years to pay off the loan.
Although your monthly payments will be slightly higher than
they would be under the other repayment plans, you'll wrap up
the debt more quickly, which means you'll pay less in interest. |
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Extended repayment. As
with the standard repayment plan, you'll still pay a set amount
each month, but you'll have longer to pay off the debt: between
12 and 30 years, depending on how much you owe. It's a good
idea if you have a hefty loan, but consider the extra interest
you'll accrue. |
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Graduated repayment. Most
recent college grads start out with a small paycheck that increases
over time. The graduated repayment plan mirrors that expected
salary life cycle. You'll start off making small payments in
the first few years after graduation, then work up to larger
monthly payments. While initially you'll be required to pay
the interest only or half the payment you'd make under the standard
repayment plan -- whichever is greater -- eventually you'll
pay both interest and principal, up to 1.5 times what your monthly
payment would be under the standard plan. |
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Income-contingent/income-sensitive
repayment. Each year, you can have your monthly payments
adjusted to an affordable level, an amount calculated using
the adjusted gross income you reported on your tax return, your
family size, your interest rate and the total amount you owe.
As your payments increase or decrease along with your income,
you'll have greater flexibility to chip away at your debt without
stressing your family finances. Of course, the less you pay
each month, the longer you'll have the debt. |
Switching Plans
Although you select a payment plan when you first begin repaying
the loan, you can always switch if your financial situation changes.
Not all plans are available for all loans, and some loans carry
limits on the number of times you can switch repayment plans each
year. Check with your lender for specifics.
Other Ways to Ease the Burden
Tacked onto your student loan are origination and administrative
fees that can equal up to 4 or 5 percent of your loan's balance.
But you may be able to reduce your fees by negotiating with a customer
service representative at the loan-holding institution. Other lenders
will shave a point off your current interest rate if you agree to
make your loan payment online or allow the payment to be automatically
deducted from your checking account each month. You can get time
off for good behavior, scoring a reduced interest rate for making
a certain number of consecutive monthly payments on time. Contact
your lender about money-saving options, or if you have a Direct
Loan, visit the Department
of Education's website.
Another way to assuage your student loan pain:
take advantage of tax incentives by deducting your student loan
interest, up to $2,500 a year. The IRS publication Tax
Benefits for Higher Education explains how you can take advantage
of the tax break whether you have a federal or private loan.
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