Student Loan Repayment
Federal student loans are easy to come by, but are getting increasingly harder to pay off. In order to succeed at student loan repayment, you must understand what kind of loan you have, the terms associated with it, and how you will repay the loan.
There are two main student loan organizations. The first is the Direct Loan Program, which is managed by the Department of Education; the second is the Federal Family Education Loan Program, which is managed by independent lenders.
Regardless of the program, you need to understand the terms of your student loan. To do this, read the fine print of your paperwork (you can also find your loan at www.nlds.ed.gov/nslds_SA) and determine the interest rate, the grace period between graduation and payment, and how much the monthly payments will be if you decide to sign up for a payment plan.
If you decide to use a student loan repayment plan, you have several options. With a Direct Loan, you have the standard loan, which is a fixed monthly payment; the extended plan, which is the standard plan but with a longer time frame (often 12- 30 years); the graduated plan, which begins with a small monthly payment and grows higher over time (great for professionals starting out in high income positions like doctors); and the income contingent plan, which changes annually based on your adjusted gross income declared on your tax return. The loans for the FFEL are similar in scope. To calculate the difference between plans, visit www.ed.gov/offices/OSFAP/DirectLoan/calc.html.
If you don't pay your federal student loans, the lender has the right to call the loan, meaning you now owe the whole balance immediately. Failure to pay also shows up on your credit history and you may have your wages or tax refunds garnished (if this is legal in your state). If you are a professional, take note: the federal government may deny you a professional license, such as an insurance license or stockbroker license.
While not the best situation, if student loan repayment isn't on schedule, it's usually better to pay the balance off with a credit card and deal with the unsecured credit card debt over time. By law, credit card companies cannot hurt you as badly as the federal goverment when collecting debt.
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