April 1, 2005 in Student Loans

Repaying your student loans

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. Knowing when the repayment process begins and making sure that your lender has a current address for you is crucial. Missed payments can heavily impact your credit score and could result in a number of nasty fiscal consequences including additional fees, losing your federal and state income tax refunds to the government and wage garnishment.

Get ready to start the repayment process 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:

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:

Switching plans

Although you select a payment plan when you first begin repaying the loan, with federal loans you can always switch plans 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. Private loans offer their own set of repayment options and frequently don’t include income-based plans. Check with your lender for specifics on what’s available to you.

Other ways to ease the burden

Tacked onto your student loan are origination and administrative fees. You may be able to reduce your fees on private loans 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. Unfortunately, the only borrower benefit federal loans offer is a 0.25 percent reduction in your interest rate for paying by electronic debit. Contact your lender about money-saving options.

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 Internal Revenue Service publication Tax Benefits for Higher Education explains how you can take advantage of the tax break whether you have a federal or private loan.