Don't Go Broke: What You Need to Know About Student Loans

Don't Go Broke: What You Need to Know About Student Loans

(Image: iStock/michaeljung)
(Image: iStock/michaeljung)

Neither of my adult children has started paying back their student loans. My daughter has been serving in AmeriCorps, so she won’t begin paying back her debt until her service is complete; my son is still a full-time student.

But my children and I have already talked about things like the interest rate they’re being charged and their total indebtedness.

The Right Time to Select a Payment Plan

Very soon, my daughter will join the millions of Americans who are paying down student loan debt—now estimated at $1.3 trillion with an average indebtedness of more than $37,000. According to Mark Kantrowitz, it’s during the grace period—typically the six months after graduation—that borrowers should select the payment plan best for them, The New York Times reports.

I advocate making use of income-based repayment plans to make payments more manageable, but Kantrowitz advises choosing the highest monthly payment you can afford to lower the amount of interest paid over the life of the loan. Just choose the plan that makes the best economic sense for you.

(Bold TV host David Grasso and Black Enterprise Education Editor Robin White Goode discuss student loans on Bold TV’s #BoldBiz Internet show. Video courtesy of Bold TV) 

Here’s important information excerpted from the Times.

Whether the speaker at your college graduation is the Apple chief executive Tim Cook (M.I.T.) or the actress Eva Longoria (Knox College), the event signals the end of your undergraduate career—and moves you that much closer to having to repay your student loans.

Most federal student loans come with at least a six-month grace period, a time during which you don’t have to make monthly payments. For spring graduates, that means repayment is likely to begin sometime in November or December. That gives new graduates some breathing room—to find a job, rent or buy an apartment, or buy a car—before starting to make payments.

But many borrowers, despite studying hard to earn a degree, are uneducated about the type of loan they have, how long it will take to repay, what their monthly payment is likely to be, and other important details, according to research from Prudential Financial. So they may be caught off guard when it comes time to begin repayment.

“There’s a lot of ignorance, unfortunately, and it causes people a lot of angst,” said James Mahaney, vice president of strategic initiatives at Prudential. He suggests taking simple steps, like creating a filing system for loan documents, to help keep on top of your obligations.

To help things go smoothly, make sure your student loan servicer—the company that sends you statements, collects payments, and otherwise manages your loan—has your correct contact information. That means not only your street address, but also your cell phone number and email address.

You’re responsible for making sure your servicer knows how to reach you, even if you move, said Lauren Asher, president of the Institute for College Access and Success. If statements go to an old address, you may end up making late payments—and that may cost you in late fees and added interest.

Read more at the New York Times.