you already owe less money this year because of
MANAGING YOUR STUDENT LOAN DEBT
falling interest rates, and consolidating can protect you from future rate increases. For example, a borrower repaying on Stafford Loans issued on or after July 1, 1998, will automatically have a weighted average rate of 4.125% after consolidating.
You need to remain aware, however, that while consolidation can ease your monthly debt load, you’ll end up paying more in interest if you only make minimum payments. If you can afford to pay off your debt before the end of your term, do so, as there is no prepayment penalty associated with student loan consolidation. For more information, contact the Federal Direct Consolidation Loans Information Center (http://loanconsolidation.ed.gov); Collegiate Funding Services (www .cfsloans.com); or private lenders Sallie Mae (www.salliemae.com) and Citibank (www.studentloan.com).
LOAN MANAGEMENT IN SCHOOL
Even though most loans go into deferment while students are in school, there are ways to lower the debt burden before graduation. Daniel Brown, 23, a first-year student at Washington University Law School in St. Louis is already concerned about finding the best way to pay back the debt he expects to incur.
Last year, Brown (who is a former BLACK ENTERPRISE intern) graduated debt-free from Washington University with a B.A. in English thanks to an all-inclusive merit scholarship. For law school, however, he only received $10,000 in scholarship money and expects to finance the rest of the $28,460 tuition with $15,000 in student loans and a contribution from his parents. A portion ($8,000) of the loans are subsidized, meaning the government pays the interest during deferment periods, but the remaining amount is unsubsidized and Brown will have to pay on the interest while in school or defer and accumulate the interest until repayment.
Some of the loan money will go toward his living expenses such as car insurance, and Brown plans to live at home to save money. “I expect to have around $45,000 in debt after graduation, but I don’t know how much I will have to borrow over the next two years,” he says. Brown is currently paying the interest on his student loan (approximately $20 per semester), and he hopes to land well-paying summer internships to allow him to borrow less.
“It’s smart for students to pay the interest while they’re in school,” Laylock advises. “This way, the amount doesn’t accrue and $15,000 doesn’t become $16,900. If you were to get a small windfall of say, $2,500, consider paying $200—$300 on student loans.”
FACING THE BIG PAYBACK
Sandberg, of Consumer Credit Counseling, says that Brown is in really good shape if he only expects to incur $45,000 of debt. She knows of cases where law school students have graduated with $200,000 in loans. Sandberg advises that graduate students such as Brown first “look at what you need to survive, put yourself on a budget, and constantly reassess it.”
Another debt-management strategy that current students should be aware of is consolidating loans during the six-month grace period after graduation. If you consolidate during this time, you can lock in