The parties are over, Thirsty Thursdays are a mere memory, and early morning wake-up calls have taken the place of 11:30 am classes. Life after college can be a bit jolting and the wretched specter of student loans don’t help to ease the transition, especially as a volatile economy has made the job search even more difficult for many recent graduates.
The realities of repaying student loans hit me harder than Mike Tyson after a deadbeat roommate forced me to cough up rent for a two bedroom apartment by my lonesome for a number of months. Needless to say, paying back my loans fell somewhere toward the bottom of my priority list. A reluctance to repay student loans was mirrored by some of my college compadres. While I chose to defer–or suspend–my loans for a year, some friends used the “out of sight, out of mind†method.
Not surprisingly, our fiscal dilemmas are shared among students. Default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007, up from 4.6% two years earlier, according the U.S. Department of Education. And over the past decade, the amount of debt students graduated with more than doubled from $9,250 to $19,200 for graduates, according to the Project on Student Debt, a student advocacy organization.
For graduates facing the daunting realities of coughing up that borrowed dough, check your options:
Call your lender. Many of us like to treat overdue bills like a bad rash–ignore it and it’ll go away–but much to our dismay, bills, especially student loans, don’t work that way. Contact your lender as soon as you get a whiff of repayment difficulty, says Mark Kantrowitz, publisher of FinAid.org, an online financial aid resource center. “You don’t want to default and then call, because you’ll lose some of your [repayment] options,†he adds. Remember, lenders can garnish wages, social security, and income tax refunds if you fail to repay your loans.
Apply for a deferment. Graduates who encounter financial difficulties c
an defer, or suspend, their loan payments for up to three years depending on the program. Borrowers should apply for a deferment before the end of the grace period–the six to nine month period former students receive before they have to start paying back loans–otherwise they’ll have to start making loan repayments until the deferment is approved. Be persistent; although many lenders encourage students to apply for a deferment online, try it over the phone. My theory is that it’s harder to tell someone no once you actually hear their sob story. I know: cheesy, but true. A friend of mine had to call her lender several times for deferment. Remember, in many cases, “no†doesn’t necessarily mean no, it just means try harder.Apply for loan forbearance. Similar to a deferment, a forbearance allows borrowers to suspend loan repayment after the grace period for up to three years, but interest continues to accrue, even on subsidized loans. “A deferment or forbearance should be for a temporary problem not for a long-term problem,†Kantrowitz says. Since you can end up suspending loan repayments for up to six years, your loan balance can end up skyrocketing due to accruing interest, digging graduates into a deeper financial hole.
Look for alternative repayment options. A new income-based repayment plan is perfect for borrowers who work but don’t make enough to pay the minimum monthly installments. Repayments options are based on a percentage of your discretionary income rather than the total amount of your loans. Here’s the kicker, your debt is forgiven after 25 years in this in program. For those working full time in the public service sector–fireperson, police officer, librarian etc.–your debt is forgiven after 10 years. The program goes into effect July 1. Check out Sallie Mae’s online worksheet to determine whether you’re eligible.
For more on repaying your students loans check out:
Consumer Law Center’s Student Borrowers Assistance Center
Federal Student Aid’s Ombudsmen
Renita Burns is the editorial assistant at BlackEnterprise.com.