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Shoveling out from under student loans

Brother, we feel for you. You just graduated, and your parents are positively pink with pride in their seed. But underneath your totally flammable graduation gown, deep in your back pocket, you have four letters from four loan providers demanding money, pronto -- and you know nothing about what you owe.

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t happens to the best of us. The fact is, most freshmen don't know if "financial aid" means they're borrowing, work-studying, or receiving largess strictly for good looks and charm. And after four years of reaping funding from odd sources, along with moving paperwork into four different dorm rooms, you're bound to have a loose grip on what you owe after graduation. Here, then, is a crash course in getting started paying the right way.

Gather your information. Probably your first wake-up call about owing money was a certified letter(s) reminding you of your loan(s) and detailing terms of payment. You have about six months from graduation before most loans start kicking in, so use that time to get your shinola together.

Don't trust that all those certified letters made it to your house, especially if you or your parents moved while you were in school. If you have any paper records, break 'em out. Raid your parents for their records and then raid your financial aid office for a full printout of what you owe. Most offices are happy to oblige dazed graduates looking to organize themselves. If you attended more than one school before graduating, deal with both of them -- don't assume they've shared records.

If you've just graduated or are still in school, an excellent -- not to mention free -- resource is the National Student Loan Data System. You can see a consolidated view of all your federal student loans across all schools you've attended, including graduate programs just by providing your birth date, SSN and a PIN you register for online. The online service doesn't contain older records, so less recent grads must call (800) 4-FED-AID to access a scaled-back service. They can give you a list of creditors -- a.k.a. the folks you owe -- but, unfortunately not the amounts or any payment information.

Get educated. After getting all your papers handy, filed, collated, et cetera, now it's time to get jiggy. Know from whom you've borrowed, what the general terms of the loan(s) are, and find out what your monthly burden will be. You can view an awesome student loan primer at Finaid.org. It's quick (less than half an hour).

Know at least the following for each of your loans:

  • Loan amount -- "principal" is the amount your borrowed; "interest" is what you'll pay to borrow that amount.
  • Interest rate and whether it's fixed or variable. A variable rate means the interest you pay could go up or down over the life of the loan.
  • Terms of loan -- how many years you're expected to take to pay it off.
  • Whether your loan has been subsidized or unsubsidized while you were in school. Subsidized loans mean the government paid the interest while you were in school; unsubsidized loans mean you pay all the interest, although your payments can be deferred until after graduation.
  • Minimum payment required, as well as recommended monthly payments.

Prepare to pay. Get your recommended monthly payment information together for each loan and consider the results -- you might want to access Finaid's calculators to get a better grip on this. Don't panic. In fact, get the resident smart-in-math person in your life to verify what you've learned through this exercise. If you've already accepted a job, this is a great opportunity to work on a budget and figure out how not to starve on your salary.

If you are seriously out of your depth, be aware that you have plenty of alternatives. Consider consolidating loans. Bundling your federal loans to one fixed-rate loan could significantly reduce your monthly payment. And, interest rates have never been better.

In July 2004, the interest rate on federal Stafford loans dropped to 3.37 percent, the lowest rate in the 38-year history of the student loan program. Find out what rates are today.

You can also defer many loans if you're in school at least part-time, if you're fired or disabled, or if you can demonstrate economic hardship. Realize that simply being fresh-outta-school does not automatically win you the sympathy of those judging economic hardship. You have to prove you really can't afford this.

Forbearance is another option. Those in the most dire circumstances can postpone payment of certain loans for a finite period (usually less than 12 months), although interest continues to accrue. Certain post-graduate occupations, like teaching for AmeriCorps or military service, can get a portion of your loans forgiven altogether -- perhaps a radical move but worth checking out. Take a look at Finaid.org again for a variety of work options that might help you shovel out from under your debt.

Pay something. If you think defaulting on your loans outright isn't a big deal, consider the evil consequences to your credit history, including your ability to ever borrow money for education again. Check out the Department of Education's scary words to the wise.

If you were smart enough to graduate, you can deal with student loans. And there's always creative begging: Pay my Education Bake Sale, College-Educated Bikini CarWash ...

 
-- Updated: Jan. 24, 2005
   

 

 
 

 

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NATIONAL OVERNIGHT AVERAGES
Stafford - in school 4.66%
PLUS loan 7.21%
Private loan 8.30%



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