Tips how to pay student loans.

Studies show that today about two-thirds of college graduates from four-year universities have student loans and debt that averages over $22,000, and the amount continues to increase every year. But there some options available to students when it comes to paying student loans and bills. Here are five steps from the Institute for College Access & Success, which is a California-based nonprofit agency that runs the Project on Student Debt. Learn how to get help with paying down student loans.

Determine how much you owe in student loans

You first step is understand how a student loan works, how interest is calculated and the method in which monthly bills are determined. While the interest rate you will need to pay on a federal student loan tends to be very competitive and favorable for repayment, the interest begins to accrue as soon you take out the loan, even if you are still in school. So what this means is that you will have four years of interest to repay added on top of the loans you took out by the time you graduate from school.

Also, interest doesn't stop growing during the grace period you have before repayment begins. The one exception to this will be with subsidized federal student loans. These are loans in which the federal government will pay interest until the loan becomes due. However this form of financing is not as common.

If you are a college student, you will need to demonstrate your financial need for assistance in order to qualify for a federal government student subsidized loan. This will be based on income levels, household assets and many other factors. If you have an unsubsidized student loan, your interest will begin to immediately accrue.

Pick a student loan repayment plan

While the standard federal loan repayment plan is typically 10 years, you do have options. An extended time period to repay your loan may be tempting because a longer payment period requires a smaller monthly bill to pay. The downside though is that you will need to pay interest over a longer timeframe, which pushes up the total cost due to the additional interest you will be paying.





The best approach is to select as short a loan repayment term as possible and that you think you will be abl to afford. The the good news is that if for some reason you can't keep up with the monthly bills and payment schedule, you can always switch plans to one that has a lower monthly payment. You are allowed at least one change per year in your plan when it comes to taking out federal student loans.

There is even a new option for a repayment plan starting up. This is a new program that is for federal student loans only, and it is called the the Income-Based Repayment program. Eligibility for this assistance program is determined by weighing your debt level and other monthly bills against your total gross income.

This program offers a great financial aid package to those who qualify. In some cases, there may be no monthly payments required on order to pay your student loan costs for those who earn less than a certain income, which is currently about $16,000 a year. If your income is above that threshold, even then your monthly payments will be generally capped at 15 percent of any income above that amount. In addition, any outstanding debt that is remaining after 25 years is written off. Unless of course you start making enough money and your income is so high that you no longer qualify for the student loan assistance program.

Try to defer your student loans bills

Another option is that you can defer payment on federal loans and any related monthly bills under select circumstances, including if you lose your job, perform military service, and this is also for individuals facing an overall economic hardship. With private loans that are taken out, the rules on postponing payment (which is known as "forbearance") are set by the private lender or bank.

However, you need to do your best to avoid delaying payment if you can because what happens is that interest continues accruing on your loan unless you have a subsidized federal loan, as noted above. While graduate school is one way to defer payment on most private as well as federal loans, graduate school can backfire as it will add to your total outstanding debt.

If you think you can qualify for the unemployment deferment option on federal loans, you need to demonstrate that you are actively looking for employment.

In addition, you may be able to qualify for economic-hardship deferment on your student loans if your income is below about $16,000, you work in public service, or if you receive public assistance. There may be some other criteria as well, and your lender can provide the latest guidelines. Please note that deferment for economic hardship and unemployment is limited to three years.





Look into consolidating your student loans

A consolidation lets you combine more than one student loan in order to make a single monthly payment, often times at a lower interest rate. This will lower the monthly expense that a borrower has for the term of the loan. In addition, from the consolidation you also get a fixed interest rate for the life of the new loan.

A consolidation in particular may help those who took out a federal loan before July 2006, when interest rates on loans were variable and changing each year. Another candidate for consolidation is for people who may want to "consolidate" a single federal loan if it has a higher, variable interest rate, into a more competitive loan.

After you have graduated or been out of school, and if you are running into trouble making payments, a student loan consolidation is a way to get renewed deferment rights. So this will then allow some deferrals to take place for unemployment or other conditions as noted above. Note that most federal loans can be consolidated under the Federal Direct Loan Consolidation program.

One con to proceeding with the consolidation is that it will usually extend the repayment terms and length. For example, if someone only had 15 more years left on the money they borrower, depending on how they consolidate it, that time-frame could be extended to say 20 years. This means the overall cost of the loan will be higher as it is for a longer period.

A pro to consolidation is that there is no cost or even a fee involved to consolidate. Some federal student loans, such as the Stafford and PLUS loans, may charge a small cost that is deducted from the disbursement check, but there will never be an upfront fee that you need to pay.

Student loan consolidation might not be a good option if you have used private loans or borrowed money from banks because most private lenders and banks are getting out of the federal loan business. They are generally trying to reduce risk due to the current weak economy, and because of this, a consumer may receive a good deal.




Do not default on your student loan

You should never default on a student loan as doing so will create some ugly consequences. How this happens is as follows.

First of all, defaulting on a student loan will immediately go on your credit profile and it will likely obliterate your chances of receiving any other type of loan, such as a mortgage or credit card. It could even impact a future job search, as potential employers may review those credit reports. The reason being is that federal loans, with their favorable interest rates, are regarded as among the easiest loans to repay.

In addition, the cost of your loan will jump too as on top of late fees that are assessed, you'll also be liable for collection costs, including attorney fees and court costs.

The federal government can also take money from your salary by garnishing your wages up to 15 percent, which is a practice that can follow you late into life and future jobs. They do this in order to recover the money that someone borrowed from the, Also, note that student loans typically aren't discharged in a bankruptcy filing either, so declaring bankruptcy will not help pay off a student loan.

By Jon McNamara

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