Student loans can seem like one big albatross. No sooner have you graduated and left the shelter of academia you feel the weight of the "real world" coming down on you in the form of this debt. It hangs around your neck and makes you wish someone would help you lighten the load.
Well here's some uplifting news: The more you learn about loan terms and special payment plans, the more money you can save over the life of the loan and the easier you can make the repayment process.
Whom Do You Owe?
The first step in making your repayment process go as smoothly as possible is figuring out whom you'll be repaying. Sometimes the agency that lends you the money in the first place ends up selling the loan to a third party who will service the loan until it's repaid. The National Student Loan Clearinghouse provides a "LoanLocator" service that will show you a complete list of the loans you have, the parties that service them and their contact information. (The financial-aid page of the U.S. Department of Education's site is also useful.)
Most loans have some connection to Sallie Mae, the largest government-backed lender. You'll find a wealth of information about the loans offered by Sallie Mae on its Website.
Knowing who is servicing your loan is vital. Any time you have questions about changing your repayment options or questioning the status of your loan, you'll need to have easy access to your lender. You can also look on Sallie Mae's Website, which provides a locator service for all lenders that work with Sallie Mae.
While in School: Subsidized or Unsubsidized?
While you are still enrolled, you will have to work out your financial aid package with your school. That package will often consist of a combination of government-subsidized loans and unsubsidized loans.
Subsidized loans are the most attractive because you don't have to start repaying them until after you graduate. With subsidized loans, the government pays the interest while you are in school and you pay interest and principal after you graduate. Contact Sallie Mae to find out what the maximums are for different types of loans. And while you're in school, the lender will hold off on charging interest on the loan. These programs include Perkins and Stafford, run by Sallie Mae and accessible through its Website.
At a certain point however, you may max out on your allowance of subsidized loans and have to take on unsubsidized loans. These allow you to defer payment on the principal portion of the loan until you're finished with school. But interest payments will be charged while you are still in school. You will have a choice between deferring these interest payments until after you graduate or paying them while you are still enrolled. Before leaping to defer your interest payments, however, you should calculate how much that would increase the total size of your loan. Sallie Mae offers a calculator.
Pick a Plan
The next step is deciding on a repayment plan that fits your income expectations. Sallie Mae offers a number of plans. For instance, there is the Flex Repay account, which allows you to make interest-only payments for up to four years before converting to standard payments. You might choose this if you anticipate your income being low for a few years and increasing later on. For example, if you're entering an unpredictable career that may take a few years to get off the ground (acting, design, writing), this may be the best plan for you. (Stafford, SLS and PLUS borrowers are eligible.) Sallie Mae also offers the income-based repayment, which requires you to pay a percentage of your income. You should choose this if your income will fluctuate or if you know you'll have a big bump in income after a few years of low pay.
Sallie Mae and other lenders also offer extended repayment plans of up to 25 years and graduated plans that increase the payments steadily over time, with the idea that your income will increase as well. Discuss these options with your lender and decide which works best for your budget. Also ask about your options should you choose to change your repayment plan.
Managing Multiple Loans
If you have more than one loan, repayment can be confusing. You're trying to keep your different lenders straight and wondering whether you're getting the best deal. That's when you should consider loan consolidation, through one of several programs offered by Sallie Mae or associated lenders. Loan consolidation combines multiple loans into one, taking a weighted average of the various loans' interest rates and rounding up to the next 1/8 of a percentage point.
Borrowers under the following programs are eligible for consolidation: Stafford, Federal Direct Stafford, PLUS, Federal Direct PLUS, SLS, Perkins, NDSL, HPSL, IDS, LNS, Federal Consolidation, Federal Direct Consolidation and HEAL loans. You can look at Sallie Mae's Website for more information about the specific features of those loans. Sallie Mae also offers consolidation programs for loans that are not owned by Sallie Mae itself. Check out Sallie Mae's Website for more information.
You can always find information on the status of your loans in your payment coupon books or recent billing statements, although it can be frustrating to have to wait until your bills arrive each month to know the status of your loans. Sallie Mae allows you to view your account online at any time of day. Firewalls are set up to protect your account information.
If your loan is serviced by a provider not associated with Sallie Mae, find out what options you have for checking your account status.
Sallie Mae offers a few different ways to save money on your loans. Under its Direct Repay program, you set up an automatic deduction from your checking account each month. If you sign up for this, Sallie Mae will reduce your interest rate by 1/4 of a percentage point. This may not seem very significant, but the larger your loan is and the longer the repayment term, the more any rate reduction matters. More information is available from Sallie Mae.
Sallie Mae's new NetRepay service allows you to receive and pay your loan billings online. You can register to pay online through your bank or a through a Web-based payment service such as Quicken.com. Or you can register through Sallie Mae's Website. You'll have a password-protected way of reviewing your loan bills and paying them. The reward is that you may be eligible to have your interest rate reduced by 1/4 of a percentage point.
You also may be able to reduce your interest rate by making your payments on time. Some lenders offer credits or reduced rates to borrowers who show a record of timely repayment. Sallie Mae offers a series of programs to reward timely payments under the following plans: Stafford, Heal Relief consolidation, Medloans, Lawloans, MBA Loans, Signature student loans and a few others (they're very specific -- you'll know if you have them).
Another option is to repay part or all of the loan before it is due. Every early payment you can make will reduce the total amount of interest you'll owe on your loan. So if you're in a position to increase your loan payment amounts, you could save yourself a lot in interest.