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Paying back student loans

You've got the education. Now it's time to start paying for it. Easier said than done. But the following information may make paying back your student loans just a little bit easier.

Exit interview
If you have taken student loans, you will be required by law to receive an exit interview. This is simply a time to meet with a financial aid advisor to discuss your repayment obligations and options. You may think you know enough about your loans. After all, you have to repay them. What else do you need to know? But don't miss this opportunity to learn more about the repayment requirement and what steps you can take to make the payments easier to handle.

If you can't make the interview, don't worry. You might be able to have the information mailed to you and talk to an advisor over the phone. You may also be able to get the information and interaction on the Internet.

Hurray for grace periods
Because most college students don't get jobs immediately after graduation, you will be granted a grace period of about six months after you stop attending school during which you won't have to start repaying your student loans. It doesn't matter if you graduate, quit or just take some time off; you have six months.

Take this time to organize your finances and evaluate your options. If you plan to go to graduate school, ask the lender to defer your payments until after you finish. If you are unemployed, you can ask for a deferment until you find a job.

You should also use this time to make sure your repayment terms are clear. Write or call the lenders to confirm the address and the amount of payment. Once you start paying, you don't want any hassles concerning misdirected payments.

Organize your paperwork
Create a file of all the important loan paperwork. Also, create files for all important financial matters including your income, assets, expenses, debt and taxes. Keep these files for a minimum of seven years.

What are your repayment options?
There are many different ways you can arrange your payment schedule, depending on what you can afford. The standard payment plan, if you can afford it, will offer you the lowest total loan cost.

A graduated payment plan will start you out with lower payments that increase as time goes on. Hopefully your income will increase with time, as well, and you'll be able to keep up with the payments. Because it takes longer for your principal to decrease, you will pay more interest with this option.

Income-based payment plans are similar to the graduated plan. But the monthly payment amounts are tied directly to your income instead of rising gradually no matter what your income.

Extended repayment will allow you to make smaller payments for a much longer period of time. If you don't expect to be able to pay your loan for quite some time, this may be the option for you. But keep in mind this will dramatically increase the term of the loan and, more importantly, greatly increase the total interest paid on the loan.

Consolidation of your loans may actually lower the total amount you pay on your loans. If a lender can offer you a lower interest rate, and combine all of your loan payments into one convenient payment, you could save a lot of money over the life of your loan.

The big no-no: default
It may be tempting to forget about your loans. You've never seen loan defaulters on America's Most Wanted. But if you don't pay your loan for six months, your school will send the collectors after you, your credit rating will be shot and the IRS will withhold any tax refunds you might be entitled to. These results may not seem like a big deal to you now, but they will greatly limit your possibilities for the future - no car loans, no mortgages, no new credit cards. It's just a bad idea all around.

Reduce what you owe
As an unemployed recent college graduate, you may have much more time than you have money. You can use that extra time to pay off your loan by volunteering for certain government projects.

  • Americorps. If you like the idea of the Peace Corps but don't want to leave the country, Americorps is for you. You can receive up to $7,400 for living expenses and, after a year of satisfactory service, $4,725 to be used toward education. The education award can be used for future education or to pay off previous education debt (your student loans). The work itself can be reward enough: cleaning up the environment, helping at-risk children and other positive community-building services.
  • Peace Corps. The Peace Corps. not only allows you to visit exotic locations (Third World countries) and challenge yourself (endure difficult conditions) but you can cancel a substantial portion of your Perkins loans in return for service. You can receive a 15% cancellation on each of your first two years and 20% on your third and fourth years. That's a 70% reduction for four years of service. You do have to contact your lender in advance of your term of service to receive your cancellation credit.
  • Military Service. The Army, Air Force, Navy, Marines and the National Guard all offer education assistance programs. Check with your local recruiter to find out how these programs can help you.
  • Teaching. Depending on where and how long you teach, you can receive complete loan cancellation or at least a deferment of some loans by filling some understaffed teaching positions, including teaching in schools serving low-income students or teaching certain subjects in which there are a shortage of teachers.
  • Legal and Medical Service. If you choose to study medicine or law you can rack up some hefty education loans. But there are programs that offer partial cancellation of loans for public service.
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