USA Funds suggests four steps to successful student-loan repayment
College grads should plan now for student-loan repayment
INDIANAPOLIS — Many members of the class of 2005 are leaving college campuses with thousands of dollars in student-loan debt in addition to their diplomas. USA Funds®, the nation's leading education-loan guarantor, advises recent graduates to take four simple steps now to plan for repayment of their loans.
“Federal student-loan borrowers typically have six months after they leave school before they must begin making loan payments,” reports Gregory A. Ayers, USA Funds vice president, policy and compliance. “This grace period is an excellent time for graduates to determine how they will pay back the loans that financed their education.”
USA Funds recommends that student-loan borrowers take the following steps:
Know What You Owe. Grads should spend a few minutes gathering their loan paperwork to determine how much college debt they owe. If they've lost that paperwork, they can use the free Loan Locator service of the National Student Clearinghouse or the U.S. Department of Education's National Student Loan Data System.
Determine How Much You Can Afford to Pay. Grads should plug their debt figures into online loan-repayment calculators, such as the one on the USA Funds Web site, www.usafunds.org, to estimate their monthly student-loan payments. They then should compare the estimated payment against their gross monthly incomes — before taxes and other deductions. Graduates who've already lined up jobs know what their starting salaries will be. Others can consult with their campus placement office or the U.S. Bureau of Labor Statistics Web site to estimate their monthly income.
Choose a Repayment Plan. Federal student-loan borrowers have four repayment plans from which to choose. A good rule of thumb is that if a graduate's estimated loan payments are less than 8 percent to 10 percent of the graduate's monthly income, the standard repayment option likely will provide an affordable monthly payment as well as the lowest total interest costs. This option calls for equal monthly installments of at least $50. If the monthly student-loan payment exceeds 8 percent to 10 percent of monthly income, the graduated, income-sensitive or extended repayment plans offer lower initial monthly payments. These options generally result in greater total interest costs, however. Recent graduates also should explore loan consolidation, which offers fixed interest rates and the potential to reduce monthly payments by as much as half. By consolidating prior to July 1, recent graduates can lock in the current historically low student-loan interest rates.
Keep in Touch. Many college students move following graduation and need to keep their lenders advised of their address changes. Graduates who fail to do so may not receive important information from their lender about their student loans. As a result, these student-loan borrowers often incur additional charges because they miss loan payments or default on their loans. A loan default wreaks havoc with a borrower's credit record and can add thousands of dollars in additional interest and collection costs.
To help college students prepare for student-loan repayment, USA Funds offers colleges, universities and career schools a free brochure, “Student-Loan Repayment — Four Steps to Take Now,” which postsecondary institutions and education lenders may order online.