Taming Your Student Loan

Graduating was the easy part. Now, here's how to tackle one of your biggest debts.

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As gruesome as it looks, the student loan monster can be tamed. We won’t sugarcoat things, though. Financial planners say it’s best to meet the burden head on and pay it off as soon as possible. Yes. there are ways to stretch out payments or alter the amount due each month, but be forewarned: more often than not, changes to your loan schedule or set payment can double or even triple the total sum you pay back to lenders. Default or bankruptcy on your mind? Don’t even think about it. These days, when you let your loans lapse into default, you’ll find the lenders have more bite than ever before. “After they assess fines and collection fees, don’t be surprised if the amount you owe increases 43%,” says Robin Leonard of Berkeley, California, co-author of Take Control of Your Student Loans (Nolo Press, $19.95). That’s not to mention the damage to the credit you’ll need as a cushion in case things are rough those first few years. “In medicine, after school’s over, there are interviews to fly to, hotels to pay for,” says Hilliard, who knows of one classmate who has already defaulted and is on the verge of bankruptcy long before he’ll earn the big bucks. “He can’t get a credit card, and I simply don’t know how he’s going to make it,” Hilliard laments.

Take heart. Government and private lenders are aware of the amount you and other graduates owe. And creditors appear to be increasingly willing to work out terms to make paying back as easy as possible. “Everyone’s making greater efforts to be accommodating,” says Tess Van Duvall, assistant director of debt management at Emory University in Atlanta. And in one bit of good news, starting in 1998 you’ll be able to deduct interest paid on student loans up to $1,000 for five years, provided your salary is under $60,000. That amount is due to increase $500 a year until reaching $2,500 in the year 2001.

Talk about a catch-22. You take out loans for a degree that will help you live the good life, right? Shortly after graduation, though, you’re scraping to meet rent, car and credit card payments as well as student loans. To top it all off, there are additional worries like saving for retirement or a new home. “My friends all know I’m swamped,” quips Rishal Dinkins-Stanciel, a ’93 graduate with an M.B.A. from Northwestern, who still has $30,000 to service on the $60,000 she borrowed. And payments aren’t any easier now that she and her husband, Kenneth, are raising their two-year-old daughter, Kennedy. “Whenever they ask how much I owe, I just say, enough to pay for the two invisible Jeeps sitting in my driveway.”

But where do you start? The best place is your paperwork. Before you mull over how much of a financial hurt you’re in for, you need to know who holds your loans, when the payments start and what the terms are. It sounds easy, but

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