Strategies for Repaying Student Loans

Congratulations to the members of the Class of 2012 on their upcoming graduation. Unfortunately, many of them will be leaving college with more than just a diploma -- they'll have student-loan debt.

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According to the most recent data from the College Board, the average debt per borrower who attended a public college was $22,000 in 2010. And the average debt per borrower who attended a private college was $28,000.

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Those of you with federal student loans won't have to start paying them back immediately. You have a six-month grace period if you have a Stafford Loan, and you have a nine-month grace period if you have a Perkins Loan. Use this time wisely, though, to find out what your loan payments will be each month and explore your options if you can't make those payments.

Start with the calculators at Student Aid on the Web, the Department of Education's site for federal loans, to see what your estimated loan payments will be under the standard repayment program. If you don't think you'll be able to afford the monthly payment under this plan, here are other repayment plans for which you might qualify:

Consolidation. Available through the Federal Direct Loan program, consolidation lets you combine all your loans into one and extend repayment to as long as 30 years for lower monthly payments but at a higher total cost. For more information, visit the Direct Consolidation Loans site.

Extended repayment. Borrowers with at least $30,000 in loans can stretch monthly payments as far out as 25 years. This will lower your monthly payment but increase your total cost because you'll be paying more interest as a result of the longer repayment period. The Student Aid on the Web site has a calculator to show you what your estimated payments would be under this plan.

Graduated plan. You make lower payments in the first few years and higher payments later, over a ten-year period. You pay less interest initially but more over the term of the loan. The Student Aid on the Web site has a calculator to show you what your estimated payments would be under this plan.

Income-based repayment. If you have high debt relative to income, you qualify for reduced monthly payments. Any remaining debt is forgiven after 25 years. Visit Student Aid on the Web for more information about eligibility, monthly payment amounts for a range of incomes and a calculator that will help you determine whether you'll benefit from the program

Income-contingent repayment. This plan is similar to income-based repayment but uses a less generous formula to determine the monthly amount. Also, it's only available to borrowers with Direct Loans. To calculate your payments, use the ICR plan calculator.

Income-sensitive repayment. This option is available only to borrowers with Staffords issued under the Federal Family Education Loan program. Payments decrease (or increase) as your income does.

You might qualify for a deferment, forbearance or other form of relief if you have trouble making payments. See the Postponing Repayment page at Student Aid on the Web. Explore these options to avoid missing payments or defaulting on your loans.

Another option to consider if you think you'll need help paying off student loans is to get a job that will qualify you for a loan forgiveness program. The Public Service Loan Forgiveness Program is available to borrowers with Federal Direct Loans who have a public service job, such as law enforcement officer or public school teacher. (People who have Staffords through the FFEL program can usually consolidate them into the Federal Direct Loan program to qualify for the loan forgiveness program.) After making 120 on-time payments while working full-time in that position, you may qualify to have the balance of your loan forgiven. Serving in the military or working for organizations such as Americorps or the Peace Corps can also qualify you for loan forgiveness. Learn more about these loan forgiveness opportunities at FinAid.org.

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