Student Loan Tips

Here are three steps experts say recent grads should take to get a better handle on student



loan debt: Step 1: Establish all Loan Details
Grads should start by taking inventory of their loans,
including: how much debt they have, who their lenders are,
the loan terms, and when repayment begins.
“Students need to from the very start put in place a plan
that’s going to allow them to pay this off systematically--
they should look at all of their loans and figure out which of
their loans have the highest interest rate and they can pay
that one off first,” says Goldman.
Students with private loans can take inventory of their loan
terms by looking at a copy of their credit report, but
understand there are different terms and repayment options
than federal loans, warns Jarvis.
“They may have variable interest rates that are likely to rise
over time, some of those variable interest rates will have no
cap, and aren’t likely to offer an income based repayment
plan of any kind,” she says. “Federal loans will be more
flexible over time and for most people, more affordable, so
targeting that private loan debt for payment also can be a
smart strategy.”
Step 2: Understand Repayment Options
Depending on their financial situation, grads have a variety
of federal loan repayment options to choose from.
“Understanding those repayment plans, whether it’s a
standard or extended or some sort of graduated plan, is
critical to figure out what you might qualify for,” says JJ
Montanaro, USAA certified financial planner
practitioner. “It’s not a one size fits all in terms of
repayment options--they need to find the one that fits their
situation the best.”
For eligible borrowers experiencing financial hardship, the
Income-Based Repayment Plan and the new Pay As You
Earn Plan offer maximum monthly payments capped at a
percentage of the borrower’s discretionary income (15% for
IBR, 10% for Pay As You Earn).
While borrowers under both plans will pay more over the
life of their loan than under the 10-year standard plan,
income-driven options can often be a better choice than
requesting a temporary forbearance or postponing payments
altogether, notes Jarvis.
“That is an option for federal loans but it’s not always the
best way to control the costs of your loans because interest
continues to accrue and if you’re enrolled in one of these
income-driven plans, there are other benefits that are
associated with that including affordable payments and for
some people, the potential of some loan cancellation down
the line.”
Step 3: Strive to Pay on Time
It’s vital that grads pay on time, and signing up for
automatic loan payments can minimize the chance of
missing important payments while juggling monthly bills for
the first time, says Phillip Quintana, senior vice president at
Capital One Bank .
“Many times, lenders will knock 0.25% or so off your
interest rate if you sign up for automatic payments, which
can save hundreds of dollars over the course of your loan.
Some lenders will also lower your interest rate if you make
the first twelve months of loan payments - easy to do when
the loans are paid automatically each month.”
Although it may take years to become debt free, grads
should note that student loan debt is considered an
installment loan and can make for a stronger credit history
as long as they are consistent with on-time payments, says
Goldman.
“It’s going to help ensure that your credit history is a strong
one, that you have a solid history of monthly payments on
the dot and that’s a really important factor,” he says. “If
you’re going to have student loans and you’re going to have
to repay them, you might as well get something out of it and
a positive credit history is a great thing to target there.”