Student Loan Survival Guide

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

times that year, or quarterly, rather than monthly. So, interest accrued on the loan in forbearance would be $250 rather than $750.

Jones says he didn’t have to jump through hoops to get his forbearance. “It was just a phone call. It was easy. I asked for it and they said OK. They asked some questions. I was honest,” he says of his 10-minute conversation with Direct Loans.

The Department of Education offers an online forbearance application for students with Direct Loans that asks why the borrower is requesting the forbearance and if the borrower wants to temporarily stop payments or reduce them. If the borrower just wants to reduce payments, he or she can specify the monthly payment. The form must be printed, signed, and mailed to the Department of Education’s Direct Loan Servicing Center. Students with Federal Family Education Loans should contact their respective lender for deferment and forbearance application instructions.

Borrowers are required to meet certain standards to be eligible for forbearance, such as being unable to meet the monthly payments because of financial hardship. For a deferment, the borrower must be a part-time college student, in a graduate fellowship program, in a rehabilitation training program (for those with disabilities), actively seeking but unable to find full-time employment, or having financial hardship.

CONSIDER COMBINING YOUR LOANS. Denice Richards chose to consolidate her loans to reduce her payments. Richards graduated in 1997 with $12,000 in loans and a degree in journalism from
Grambling University in Louisiana. The sections editor for ANG Newspapers/MediaNews Group in Pleasanton, California, had paid $4,000 of her debt when she decided to consolidate in 2003.

“They were offering a 4.75% interest rate,” she says of the Citibank loan, which was at least half a point lower than what she was paying at the time. Richards says consolidation was the only option she considered. By consolidating, Richards cut her monthly payment in half, to $78.

If you consolidate with Sallie Mae, there is an immediate .25% deduction on your interest rate, Korsvall says. And there is a one percentage point reduction after 36 months of on-time payments.

But there is a drawback to consolidating: borrowers start over with their payments because they refinance their loan.

“When I consolidated, I had paid five years into my cycle. But now I have another 10 years to pay it off. So instead of paying it off for 10 years, it’s 15. If I didn’t consolidate, I’d only have three years of payments left,” Richards says.

Korsvall advises borrowers considering consolidation to research it thoroughly first. “When you consolidate, you can’t unconsolidate. And in many cases, you cannot reconsolidate. So it’s very, very important to get expert advice,” she says.

Steven L. Johnson, director of the Office of Financial Aid at Howard University in Washington, D.C., said consolidating isn’t the cure-all for every borrower.

“Consolidation may be a very reasonable option for students. However, we do not recommend one simple solution for all students,” he says. “Consolidation is something to be considered on an individual basis, and the decision to

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