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Making Loan Repayment Painless

Created January 5, 2007 by Lee

The worst thing about graduating is the reality of paying back student loans. If, as experts recommend, you were able to keep your debt down to about 10 percent of your expected starting salary, congratulations. Either way, you still have to pay it back, no matter how big or small your student loan debt may be.

There’s no question student owe a lot. The average debt (including pre-med borrowing) for the class of 2006 totals approximately 130,500, and 40.2 percent of 2006 graduates have non-educational debt averaging $16,689, this according to the Association of American Medical Colleges.

But there are ways to pay debt down, and even pay it quickly. The first step is to continue to live like you’re a student. Rather than taking your paycheck and spending it frivolous items, put your money towards your basic living expenses, and use any extra to start paying off your students loans immediately.

Most students repay their loans using a standard repayment plan, which typically consists of equal monthly payments over a 10-year period. No matter what loan period you may have, call your lender and find out how to go about making extra payments. Even as little as $10 per month can be huge in the long run.

There are other options, including graduated repayment plans, where payments gradually increase (usually every two years) to coincide with an expected rise in your income.

If you’re carrying more than one loan, loan consolidation is an option that combines several student loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans (private loans cannot be included in a consolidation loan).

Consolidation not only reduces the size of your monthly payment, but it can also extend the terms of your loan for up to 30 years. It also locks you into a fixed interest rate for the life of the loan, so you always know what your minimum payment will be.

If you find yourself in trouble, there are some circumstances where you can defer payment. Deferment is when your lender allows you to postpone repaying the principal of your loan for a specific period of time. Deferments are often granted to attend graduate school, or for unemployment or economic hardship.

In a worst case scenario, you can apply for forbearance, which is a temporary postponement of payments for up to 12 months. In this case, you would be able to postpone or reduce your payments, but the interest charges would continue to accrue.

Granting forbearance is entirely up to your lender, and is only granted in cases of extreme hardship or other unusual circumstances when you do not qualify for a deferment, such as if you’re unable to pay due to poor health or other unforeseen personal problems.

The most important thing to remember is that your lender(s) don’t want you to default on your loans. Of course they want you to pay back your loans, but they also want to help you make arrangements that will work for you, because paying off your loans is a win-win for everyone.

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