Taming Your Student Loan

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

often by the time you begin paying back, your lender has long sold off your loan on the secondary market to a consolidation company like Student Loan Marketing Association (better known as Sallie Mae, 800-524-9100), USA Group (800-3824506) or Citibank (800-967-2400). That way, your original lender can free up money to funnel back into the lucrative student loan business.

If you’ve set aside every document on your loans, we applaud you. If you’ve lost track of who has what, first track down your creditors by phoning your school’s financial aid office or the Federal Aid Information Center at 800-433-3243. Be prepared to supply as much info as you can, including Social Security card number, dates of attendance and graduation, and a list of original lenders.
That helps to square away where the monthly loan check is going. Now, it’s time to figure out how you’re going to pay. Standard terms call for you to pay student debt back in 120 installments over 10 years. And to maintain the kind of good credit you’ll need to secure a mortgage, there’s no getting around paying back the debt. As far as setting priorities and deciding which burdens deserve more of your hard-earned money, financial planners tell you to follow the interest rates. Interest on credit cards accrues at an average rate of 16% yearly, while student loans are hit with an 8% rate. Meet both monthly payments, but aim to whittle down your credit card debt first.

Next, determine how much you can afford to pay on the loans themselves. According to USA Group, a loan consolidator in Indianapolis, most people can foot 8% of their annual salary in student loan payments comfortably. Translated into raw numbers, if you make $24,000 a year, $1,920 annually or $160 a month should be affordable with a minimum of financial pain.

Above that threshold, you may have to consider sacrifices, including working somewhere other than the job you envisioned. “Angie is bent on moving back to Pasadena, where she’s from,” says Hilliard. “The fact is, L.A. is a market where the competition is stiff and there’s less money to be made.” Dinkins-Stanciel says many of h
er business school classmates had to compromise, too. “We daydreamed about great sports marketing jobs or nonprofits,” she recalls. “Once we found out about student loan payments, most of us steered directly into corporate jobs or to the big consulting firms that pay six-figure salaries straight off.”

Meanwhile, you might be thinking about big-ticket items like a home or retirement. Financial planners say the matter is cut and dried: debt (including student loans) comes first, investing second. That’s how Peter and Tamara Salmon of Ayres, Massachusetts, both 27, see it. On the one hand, their son Luther is barely eight months old, and they have their sights fixed on a first home. The couple is lucky: when they both finished Johnson & Wales, a small private school in Providence, Rhode Island, their combined student loan burden was $30,000, just under $400 a month.

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