Student Loans Source:  The Project On Student Debt; An Initiative of the Institute for College Access & Success

The Top 10 Student Loan Repayment Tips

Whether you are graduating or just taking a break from college, these tips will help you stay on top of your student loans. That means avoiding fees and extra interest costs, keeping your payments affordable, and protecting your credit rating.

1. Know Your Loans:

It's important to keep track of the lender, balance, and repayment status for each of your student loans. These details determine your options for loan repayment and forgiveness. You can start by asking your lender. If that doesn't work, try visiting www.nslds.ed.gov. Once you log in there you can find out your total loan amounts, lender(s), and the repayment status of your federal loans. If some of your loans are not listed, they are probably private (non-federal) loans. For those, try to find the paperwork that you signed; contact your school if you cannot locate any records.

2. Know Your Grace Period:

Different loans have different grace periods (how long you can wait after leaving school before you have to make your first payment). For Perkins loans the grace period is nine months; for Stafford and most other federal loans it's six months. The grace periods for private student loans vary, so consult your paperwork or contact your lender to find out.

3. Pick the Right Repayment Option:

When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options that can help you manage your debt, including alternative repayment plans and deferments. Extending your repayment period beyond 10 years can lower your monthly payments, but you'll end up paying more – often a lot more – in interest over the life of the loan. The most important new option is the Income-Based Repayment program. It can cap your monthly payments at a reasonable percentage of income, and forgive any debt remaining after 25 years of payments. Forgiveness may be available after just 10 years of payments for borrowers in the public and nonprofit sectors (see #10 below).

4. Stay in Touch with Your Lender:

Whenever you move or change your phone number, make sure to tell your lender right away. If your lender needs to contact you and your information isn't current, it can end up costing you a bundle. Open and read every piece of mail you receive about your student loans. If you're getting unwanted calls from your lender or a collection agency, don't stick your head in the sand! Talk to them about the issue: lenders are supposed to work with borrowers to resolve problems. Ignoring bills or serious problems can lead to default.

5. Remember that You Have Options:

If you're having trouble making payments, don't panic. Whether it's due to unemployment, health problems, or going back to school, there are legitimate ways to postpone your federal loan payments, such as deferments and forbearance. Beware: interest accrues on both subsidized and unsubsidized loans during forbearances. First see if Income-Based Repayment could help instead: your required payment could be as little as $0 when your income is very low.

6. Stay out of Trouble!

Ignoring your student loans has serious consequences that can last a lifetime. Not paying can lead to delinquency and default. For federal loans, default kicks in after nine months of non-payment. When you default, your total loan balance becomes due, your credit score is ruined, the total amount you owe increases dramatically, and the government can garnish your wages and seize your tax refunds. Talk to your lender if you're in danger of default. You can also find useful information at studentloanborrowerassistance.org.

7. Lower Your Principal if You Can:

When you make a loan payment, it covers any late fees first, then interest, and finally the principal. If you can afford to pay more than your required monthly payment, you can lower your principal, which will reduce the amount of interest you have to pay. Include a written request to your lender to make sure that the extra amount is applied to your principal, otherwise they will just apply it to future payments. Keep copies for your records and check back to be sure the overpayment was applied correctly.

8. Pay Off the Most Expensive Loans First:

If you're considering paying off one or more of your loans ahead of schedule, or trying to reduce the principal, start with the one that has the highest interest rate. If you have private loans in addition to federal loans, start with your private loans, since they almost always have higher interest rates and lack the flexible repayment options and other protections of federal loans.

9. To Consolidate or Not to Consolidate:

A consolidation loan combines multiple loans into one for a single monthly payment and one fixed interest rate.  If consolidation is right for you, shop around for the best deal, but banks and private lenders are not making consolidation loans as often as they used to. There may be other options, but Direct Consolidation Loans from the Department of Education are definitely available.

10. Loan Forgiveness:

There are various programs that will forgive all or some of your federal student loans if you work in certain fields. Public Service Loan Forgiveness is a new federal program that forgives any student debt remaining after 10 years of qualifying payments for people in government, nonprofit, and other public service jobs.  Find out more at www.IBRinfo.org. There are other loan forgiveness options available for teachers, nurses, AmeriCorps and PeaceCorps volunteers, and other professions.

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