USA Funds offers repayment advice for students
Submitted by: Larry Viterna and Kathy Bixby, USA Funds Services
Education-loan borrowers can take four simple steps to start off on the right track in repayment and avoid the consequences of student-loan default. USA Funds® offers the following advice to borrowers who are about to enter repayment:
Step 1: Know what you owe.
Students often underestimate their outstanding college debt. Some fail to maintain complete loan records. Others forget that interest accumulates on their unsubsidized loans while they attend school. Borrowers should read the paperwork that their lenders and campus financial-aid offices provided to them about the amounts they borrowed, and they should calculate the total amount they must repay. If they have lost track of their paperwork, borrowers may be advised to use the free LoanLocator service of the National Student Clearinghouse, www.loanlocator.org, or the National Student Loan Data System (NSLDS) Student Access Web site, www.nslds.ed.gov, to find their loan provider's name and contact information. They may contact their loan providers for detailed and updated information regarding their loan balances.
Step 2: Determine how much you can afford to pay each month.
Students or graduates who already have been hired for their first job should know their starting pay. If they still are looking for employment, they should consult the campus placement office about starting salaries for jobs in their field.
Education lenders generally recommend that student-loan payments not exceed 8 percent to 10 percent of a borrower's gross monthly income. For example, for a starting salary of $25,000, generally an affordable monthly student-loan payments is no more than $167 to $208.
Step 3: Choose a repayment plan.
Education-loan borrowers have four repayment plans from which to choose, as detailed online at www.usafunds.org/Borrowers/Repayment_Options2.html. Or, they may combine their Federal student loans in a Federal Consolidation loan.
To determine which option is best for them, students and graduates may be advised to use an online student-loan repayment calculator to estimate their monthly payment. These calculators are available on Web sites such as www.usafunds.org.
Borrowers should select the plan that provides a monthly payment that they can afford but also pays back the loan as quickly as possible. The longer it takes to pay off their loans, the more interest they will pay. They may prepay their loan principal at any time, without penalty, to reduce interest costs.
If none of these repayment options provides payments that borrowers can afford, they should ask their lenders or loan servicers about deferment or forbearance, which permit temporary suspension or reduction of their monthly loan payments.
Step 4: Keep in touch.
If moving after leaving school, borrowers should notify their schools and lenders or loan servicers of changes in the borrowers' addresses and telephone numbers. This will help ensure that they receive important information about their student-loan accounts.
Borrowers who fail to notify their school, lender or loan servicer of these changes may incur additional charges for missed or late payments and risk severe penalties for student-loan default. Borrowers may contact their lenders or loan servicers for more information about these four steps to successful student-loan repayment or any other issues regarding their student-loan
accounts.
More details about the steps for successful student-loan repayment, flexible repayment plans and affordable monthly payments according to salary are available in the brochure "Student-Loan Repayment - Four Steps to Take Now." Financial-aid administrators may order the brochure by visiting the "Forms and Publications" section of the USA Funds Web site, www.usafunds.org.
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