Fact:
Nearly half of all college graduates finance at least part of their higher education with loans averaging $11,000-and many borrow much more. Those who borrowed money to finance both undergraduate and graduate degrees may owe as much as $158,500.
Here are ten tips for new graduates on dealing with loan repayment obligations.
- Know what kinds of loans you have. The types of loans you have determine the terms and when you must start paying them hack. Most loans give you six months of breathing room after graduation before you must begin making payments. A few loans, however, require immediate repayment.
- Keep in touch with your lenders-and ask for help if you need it. Stay in regular contact with your loan holders, even if you're having trouble making payments. They will help you avoid defaulting on your loans. Always open and read all mail about your loans. And always notify your lender of a change of address. Failure to do so might inadvertently cause you to default on your loans.
- Deduct interest paid on your loans from your tares. Good news from the IRS. Beginning January 1, 1998, taxpayers that have taken loans to pay college costs for themselves, a spouse or a dependent may deduct at least some of the interest they pay on those loans. The maximum deduction is $1,000 in 1998, rising to $2,500 by 2001.
- Create a realistic budget and stick to it. Perhaps the most important part of setting up a strategy to manage your loans is understanding how much money you can afford to put toward your debts each month. Keep in mind that most standard repayment plans require $125 a month for every $10,000 borrowed.
- If you can afford the monthly payments, stick with the original repayment plan offered by your lender A standard plan carries the highest monthly payment but costs less in the long run because you pay less interest.
- you can't afford the monthly payments on the original plan hut can afford something, consider a graduated plan. If you are starting out in an entry-level position hut expect your income to increase steadily, this may he your best option. Under a graduated plan, your payments start out low and increase every two to three years.
- Consider loan consolidation. This is another option if you can afford something, but not a lot. By consolidating, you can lower your monthly payments by extending your repayment period; you may also he able to lower your interest rate. The Department of Education estimates that about 100,000 former students consolidated their student loans each year.
- Explore deferment or forbearance. If you can't afford any payments, ask about a deferment or forbearance, ways to postpone your payments. Deferments are generally available for people who are unemployed or working less than full-time, suffering economic hardship returning to school, returning to work after the birth or adoption of a child or on parental leave. A forbearance will allow you to temporarily stop or reduce your loan payments, though the interest on your loans will continue to accrue. Forbearances are easier to obtain than deferments.
- Avoid default. If you default, the amount you owe will skyrocket because the government can add a collection fee of up to 25% of the principal. Furthermore, your credit will be damaged, your wages may be garnished and you may he sued.
- Don't be discouraged you may feel overwhelmed by your debt burden, but if you know your options and take action, you can create a workable strategy to get out from under your loans.
Remember... start planning early and avoid the need to borrow entirely!
