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11/03/2014

Financing a Higher Education: Part IV:

This week is a final blog about "things I wished I had known" (or wish my students knew) about repaying their loans after college.

You have a six-month grace period and then must begin  repaying your loans. Obviously, this time is intended for securing employment and establishing your financial bearings.  Use this time wisely to also begin setting up an emergency fund to have as a back-up for paying your loans.

You must complete exit loan counseling, but try to actually speak with someone to decide which repayment plan is best for you.  I completed the exit loan counseling on my own, but I wish I had discussed my options in person or over the phone with someone.  You need to identify which repayment plan you can afford, but also make sure you are selecting the correct repayment time-period you desire.  I'll explain more in the last paragraph of this blog, but I did not select a repayment time-period and it defaulted to 20 years; little did I know that I was supposed to have selected a 10-year repayment plan.

Consolidate, if possible.  If you have multiple loans at different interest rates, compare the total costs of repaying the loans separately versus paying them under consolidation.  Consolidation can also lower a higher interest rate (although, alternatively, it can also raise low interest rates).  So, check out all your options.

Sign up for automatic payments.  In most cases, if you sign up for automatic payments, you will qualify for 0.25% reduction of your interest rate.

If you are experiencing financial hardship, there are deferments and other forbearance options available.  So, please explore these options rather than letting debt pile up which can lead to your loans going to collections agencies or having your wages garnished.

If you are trying to take advantage of a special program, make sure to read all the fine print.  This was the hardest lesson learned by me.  When I came out of undergraduate, I had a Perkins Loan that could be forgiven for teaching in an under-served area.  I knew the rules quite well: it had to remain separate from the consolidation and I need to send in my documentation after every academic year of teaching.  After graduate school, I knew I was eligible for public-service loan forgiveness and I began (so I thought) working towards having my loans fully forgiven.  Last year, I called to inquire about my status and was told that my loan didn't qualify for the program- SAY WHAT???  I had been paying regularly for six years and thought I was four years away from loan forgiveness.  As  it turned out, I hadn't known about the "fine print" in which you could not accept the default time frame when consolidating, but rather needed to call and tell them to change it to 10 years.  Therefore, while this program is technically still available to me, I will actually have the loan paid off prior to the expiration of the new 10-year time period (they would start "the count" over again).  This was devastating news to me!

Lesson Learned: Read the fine print and ask A LOT of questions!

Comments

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So I have to tell you I would not ever recommend a married couple consolidating their student loans. The reason is if one partner dies, the loan isn't forgiven. If they keep them separate then if the person dies, their loan dies with them. I know it's really morbid but that is the main reason we didn't consolidate.

Katie, wow the tips keep coming. That's a huge bummer about getting your Perkins loan. Nicky, thanks for the added tip about consolidation.

That's a good point, Nicky!

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