Our thanks to Heather Jarvis for this post. Heather is a former capital defense attorney and long-time public service advocate who provides free tools and information for student loan borrowers and the people who love them.
Congratulations to the Class of 2012! It’s time to get a grip on those student loans you’ve been pushing to the back of your mind. Update your contact information with your lender, read every piece of mail you get about your loans so that you can figure out a plan that works for you, and check out my five top suggestions.
1. Pull together a list of your loans and see what you’ve got.
Your options will depend on what kind of loans you have so the first step is getting a clear idea of what you owe. Use the National Student Loan Data System (NSLDS) to learn your balance, your loan “servicer”, and your “repayment status”. Private student loans won’t be listed on NSLDS, but you should be able to find them on your credit report.
2. Figure out when your first payment will be due.
Federal Stafford loans have a six month grace period before your first payment is due. The grace period for federal Perkins loans is nine months. The grace periods for federal PLUS loans and private student loans vary and will be listed on your paperwork or you can contact your lender for that information. Know when your first payment is due.
3. Decide whether to consolidate your student loans.
A consolidation loan combines multiple loans into one. You can consolidate your federal student loans through the Direct Loan program, but NEVER consolidate federal loans into a private student loan. You’ll lose the flexible repayment options and borrower benefits like loan forgiveness programs.
Consolidation typically makes sense when:
- You want to earn Public Service Loan Forgiveness but some of your federal loans are FFEL loans (only Federal Direct Loans are eligible for Public Service Loan Forgiveness). Find out if you have FFEL loans using the National Student Loan Data System.
- You have variable rate Stafford loans (from 2006 or earlier). Interest rates adjust on July 1, 2012.
4. Determine which repayment plan is best for you.
Federal loan payments will automatically be based on a standard 10-year repayment plan unless you choose a different option. If payments under a standard 10-year repayment term are not affordable for you, find out about your other options.
Income-Based Repayment caps your monthly payments at a reasonable percentage of your income each year, and forgives any debt remaining after 25 years of affordable payments, or after just 10 years of these payments for borrowers who work in public service. Beware of relying on forbearance to postpone your student loan payments. Interest continues to accrue on student loans during forbearance, and many borrowers should consider Income-Based Repayment instead.
Private loans are a different story. Read all the paperwork carefully and ask your lender about your repayment options. They vary between private loans.
5. Learn more about how to handle your student loans.
- IBRinfo.org gives borrowers detailed information about Income-Based Repayment.
- The Department of Education sets out federal student loan repayment options.
- GL Advisor provides borrowers with a free personalized assessment of their student debt that helps borrowers determine a strategy for repayment.
- The National Consumer Law Center gives us studentloanborrowerassistance.org, a terrific all around resource.
- And I offer free webinars on Public Service Loan Forgiveness. Learn more at askheatherjarvis.com.