Savvy Consumer: Graduates have options on repaying student loans

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Savvy Consumer: Graduates have options on repaying student loans
BY TERESA MCUSIC

As thousands of Texas college students graduate this month, many will ponder the gloomy job market with one thought: How am I going to repay all those student loans?

In the past decade, sizable student loan debt has become a fact of life for a majority of graduates. In 2007, almost 6 of 10 college students graduated with debt, according to the Project on Student Debt.

Those without a job, or with one that doesn’t pay much, should know they likely have some time. Payments on federal Stafford loans have a grace period of six months. Perkins loans have a nine-month grace period.

Unfortunately for most graduates this year, consolidating loans won’t be the money-saver it has been in the past.

Federal student loans made after July 1, 2006, are at a fixed rate that cannot be changed in consolidation, said Mark Kantrowitz, author of FastWeb College Gold and founder of the Web site finaid.org. The fixed rate for 2008-09 federal student loans is 6 percent.

And in any event, few lenders are offering the service, experts say, despite historically low interest rates.

"I’m predicting interest rates for consolidation will be dropping significantly, to around 1.88 percent in July," Kantrowitz said. "But that will only be an option for variable-rate loans made before July 1, 2006."

Still, all is not lost. There’s a new repayment plan option, and an existing loan forgiveness program has been expanded, said Lauren Asher, acting president of the Institute for College Access & Success, which runs the Project on Student Debt.

Starting July 1, students with federal loans can use a new program called Income-Based Repayment.

"If you just got a degree in finance and you’re competing for shifts at Starbucks with a laid-off software engineer, this could really help," Asher said.

The repayment program is limited to students who have high debt relative to income. The formula is complicated, but Asher’s group offers a calculator at www.ibrinfo.org.

Basically, if you earn under 150 percent of the poverty level, you would pay nothing. Most who qualify will pay less than 10 percent of their total income for their loans. After 25 years of payments, any remaining debt is forgiven.

The expanded program, Public Service Loan Forgiveness, now includes nearly any job related to government service or a nonprofit organization, including teaching.

Graduates who work in such a job and pay on their loans for 10 years will have any remaining debt canceled, Asher said.

Students in the public service program should also be enrolled in Income-Based Repayment or a similar plan, Asher said.

While the public service program expansion went into effect Oct. 1, 2007, there is still no place to register, Asher said. She recommends keeping track of all employment records while waiting to sign up.

The program could be a boost for such organizations as AmeriCorps, said Rosa Moreno-Mahoney, associate director of services and volunteerism with OneStar Foundation, which runs Texas’ AmeriCorps program.

"If you have high student debt, this may be a good option for new graduates," she said.

The Texas AmeriCorps program offers around 2,500 positions each year, both part-time and full-time, with local organizations. Jobs can include a modest living allowance and healthcare.

AmeriCorps also provides an education award of up to $4,725 that can apply to past or future higher-education expenses, including student loans. That applies after the completion of a position, usually around 12 months, Moreno-Mahoney said. The organization will also pay interest on student loans that are in an interest-only deferral status while the student is working for AmeriCorp.

For a listing of AmeriCorps jobs in the state, go to www. AmeriCorps.gov.

Dealing with student loan debt Recent graduates with student loans should:
Find out your lender, loan balance and repayment status for each loan. Federal loan information is available at www.nslds.ed.gov. (You’ll need the PIN you created when you completed the FAFSA form. If you don’t remember it, get a duplicate at www.pin.ed.gov.) For private loans, look for paperwork or contact your school.

The grace period for payments to begin on Stafford loans is six months after graduation. For Perkins loans, it is nine months.

The standard loan repayment period is 10 years. If the payment is too much, consider graduated payments, which increase every two years, or extended payments, which stretch out the term.

Consider the Income Contingent Repayment plan and the new, more-generous Income-Based Repayment plan, which starts in July. Visit www.IBRinfo.org, or www.finaid.org and look under student loans.

Source: Project on Student Debt