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Home >> Lending >> Student Loans
Graduation and Student Loans
If you have recently graduated with student loan debt, you may be feeling overwhelmed by the bills and notices assailing you weekly. However, with a little organization and work, you can manage your student loans and decrease your anxiety.
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Organize
Your first step should be to organize your student loans into specific categories. Separate private student loans from those backed by either the state or federal government. You then need to check your government issued loans (which includes Stafford, Perkins, or Grad Plus loans) to determine if they are part of the Direct Loan Program (which means they are issued directly from the federal government), or if they originated in a bank and are simply backed by the government. Your loan documents should tell you which type of loan you have.
Form a Timeline
Each of your loans will have different terms. Make a timeline that includes how long a grace period each loan has, when your first payment will be due, the amount of the payment, and the contact information for the specific lender. Whenever you have questions, the timeline will allow you to find the information quickly.
To help you know how many months you have on each loan for a grace period, check your documents and notices to determine when your first payment will be due. Most loans come with a six month grace period, but certain loans, like Perkins, have nine months. Others, like Grad Plus loans, have no grace period. Also, keep in mind that if you used your grace period between undergraduate school and before your entrance into a professional or graduate school, your payments will resume almost immediately after graduation. Establish how soon your first payment will be due, and whether or not you can afford this payment. Include in the chart, the total amount of all of your loans combined once the grace periods have all expired. Based on your budget, decide whether you can afford this loan payment.
Consolidate
Your government loans can be consolidated. This includes your Grad Plus loans as well as any Stafford or Perkins loans. However, you need to wait to consolidate until the grace period has almost expired on the loan with the longest grace period, because consolidation essentially wipes out any grace period. If you cannot afford to pay some of your loans while you wait for the expiration of your grace period, contact the specific lender and request a short term forbearance or deferment. The statements and notices you receive in the mail should give you the appropriate contact information.
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Private loans can be consolidated with a specific lender. For example, if you borrowed three separate loans from Bank A, then Bank A may combine these loans so you only have one monthly payment rather than three. However, private loans are not governed in the same way as government backed loans, so you will have to contact your specific lender.
Establish a Payment Arrangement
For government backed loans, determine which payment plan is appropriate for your budget. The cheapest alternative is to use the standard 10 year plan, but if you cannot afford these payments, explore the various alternatives, such as the income contingent repayment plan, the graduated repayment plan, or the extended repayment plan. When you consolidate, discuss these options with the representative to whom you speak, to establish which one you want to use to repay your student loans.
If you have private loans, the type of repayment plans the lender may offer are different from those the government will have. However, most lenders offer similar programs that allow you to pay your loan off in a standard repayment plan of 10 years, or that allow you to stretch the payments out over a series of years or graduate your payments, so that they are cheaper in the beginning and more expensive at the end. Speak to your lender as soon as possible to determine what option best suits your budget.
Set-Up Automatic Payments
Once you have set up your loans and established a payment plan, set up your loan so that payments are made automatically from your checking or savings account. Be sure to ask your lender if he offers an interest reduction for automatic payments. Many will offer to reduce your interest by up to .5%.
Final Steps
If you have a co-signer, find out how soon the co-signer can be released from his or her obligation. Sometimes, lenders will release the co-signer after one or two years of repayment.
Also, check in with your employer to find out if your job qualifies for loan forgiveness or loan reduction. While these details are being processed, continue making payments in order to avoid penalties.
Finally, if you have trouble making your payments, contact your lender as soon as possible. There are many options for student loans, including forbearances and deferments. Lenders are much more willing to help you before you become behind on your loan repayments.
Published on BankingQuestions.com 5/26/09
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