Student Loan Survival Guide

Drowning in student loans? Save yourself from debt using our simple step-by-step plan.

Philip Jones wanted nothing more than to marry his fiancée, fly away to Costa Rica, and embark on the rest of his life. But something was holding him back—the $40,000 in student loans he owes to Direct Loans and Sallie Mae.

Jones, 30, was stressed out because he knew that if he fell behind on his loan payments, the U.S. Department of Education could provide offsets against Social Security payments and garnish his wages and tax refunds, without a court order. Until recently, only the Internal Revenue Service wielded such power.

Luckily, the 2004 graduate of Rutgers University College of Engineering knew a little something about forbearance, a temporary suspension of loan payments that most lenders will allow when times are tough. For Jones, his wallet was being pulled in too many directions; he was trying to pay for a house, a wedding, and a honeymoon within a six-month period.

“I didn’t have to make a payment for six months, so that money went toward the wedding and honeymoon. It’s easing the financial stress,” says the mechanical engineer, who works for Hayes Pump Inc., an industrial equipment distributor in Fairfield, New Jersey.

For the class of 2002, the most current information available, the median student debt was $16,500, according to Sallie Mae, the nation’s leading provider of education funding. And with the average college debt burden increasing, many recent grads are finding it hard to manage when the bills are due.

While Jones opted for forbearance, there are plenty of other ways to stay on track with student loan payments without breaking the bank. Erin Korsvall, spokeswoman for Sallie Mae, offers a few tips for taking the pain out of repayment.

CHOOSE YOUR REPAYMENT PLAN CAREFULLY. “There are a number of different repayment options to help you manage your monthly payments,” Korsvall says, offering income-based and interest-only payments as examples. Borrowers can also extend their payment terms to lower the monthly payments.

“Each situation would apply for borrowers who are in a position where they need to minimize their monthly payments. Perhaps they are a recent graduate who has just entered the work force,” she says.

STAY IN TOUCH WITH YOUR LENDER “Make sure they have your current address. You don’t want to miss the bills,” Korsvall says.

PAY ON TIME. “It’s the best thing to do,” Korsvall says. “Sallie Mae offers an interest rate discount when you pay on time. There are no pre-payment penalties.”

One way to ensure you pay on time is to pay electronically. There are a number of benefits associated with electronic payments, in which the lender takes the money directly from your bank account. Payments are never late, so the borrower never has to worry about late fees. This also builds good credit, showing lenders that payments are consistently paid on time.

Forgoing stamps has another advantage. Some lenders, including Sallie Mae, will lower your interest rate if you choose to pay back loans via direct debit. For example, one borrower saw his interest rate drop from 4.8% to 4.25% after he switched to

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