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Ten tips

By Times staff writer
© St. Petersburg Times
published September 15, 2002

Get control of student loan debt

It's a fact of life for many college graduates: student-loan debt to the tune of $20,000 or more, as well as thousands of dollars in credit-card debt. How's a recent grad to cope with such potentially crippling debt in a slow job market? The following tips can help.

1. Never make a late payment. Do everything you can to avoid becoming delinquent or defaulting on your student loans. Otherwise, your credit report can be damaged, which could affect your ability to rent or buy a home or even land certain jobs. You also could have your wages garnished and tax refunds seized.

2. Parents beware. The seriousness of the situation may prompt parents to bail their children out. Providing free room and board is one thing, but financial planners advise parents not to tap into their retirement savings and to be extremely careful about co-signing on credit cards or loans.

3. If it's impossible to make a payment for some reason, grads should contact the lender right away and explain the situation. As long as you've been making your payments on time, you should be able to apply for a deferment or reduction of payments.

4. Interest keeps accruing. If you qualify for a hardship deferment of up to three years or "forbearance," a reduction or postponement of payments for up to 12 months, be aware that interest will continue to accrue on your loans if the loans are not government-subsidized.

5. Take advantage of tax breaks. Students can deduct the interest on their student loans for the entire life of the loan. Early repayment of interest also is deductible.

6. Set priorities. If you have both credit-card debt and student-loan debt and you're eager to eliminate one of those obligations entirely, pay credit cards off first. Their interest rates are likely much higher, and the interest payments aren't tax deductible. Try to pay them off during your student-loan grace period.

7. Size up your situation. To get an accurate tally of how much you owe and how big your monthly payments will be, use Sallie Mae's student-loan calculators at www.wiredscholar.com, along with the credit-card-debt calculators at www.bankrate.com.

8. Pursue new repayment plans. To reduce your monthly student-loan bill, look into graduated, income-sensitive and extended-repayment plans. Such plans either gradually have you pay more as your income rises or allow you to lengthen the repayment period from 10 years to 25 years or more.

9. Consider loan consolidation. Another option is to bundle all your loans together into a single loan with a fixed interest rate -- an appealing prospect, since rates are so low right now. Choose a federally guaranteed consolidation loan rather than a private loan with upfront fees.

10. Be careful about grad school. Are you tempted to wait out the slow job market by attending graduate school? That would allow you to defer repayment on your student loans, but you'll be accumulating more debt in the process, and your salary probably won't be much higher after you graduate.

-- Compiled by Laura T. Coffey. Sources: Consumer Reports (www.consumerreports.org); Sallie Mae (www.salliemae.com and www.wiredscholar.com)

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