Briefly speaking: Advice on repaying student loans

Graduation is nearly here, and some seniors are understandably excited about the big transition from a student budget to a real paycheck. But before all those dollar signs go to your student's head, help your child set a budget to include student loan repayments, says Katy Maloney, interim director of Financial Aid.

Maloney says she is surprised by the number of students unaware of the total amount they've borrowed by the time they receive a diploma. The sum can catch some students off guard, especially when the first bills start rolling in a few months after graduation.

She offers several tips to help students stay on top of their student loans:

• know how much you owe and to whom;
• understand the different terms of the loans you may be carrying; and
• don't jump into consolidation.

Options for repayment

There are many lenders offering consolidation, but that may not be the right choice for all student loans. For example, a Perkins loan may have a lower interest rate that what is offered through consolidation. Maloney urges students to look at the interest rates on each loan and do their research before going this route.

Students usually have a choice of several repayment plans: the standard 10-year plan; a graduated plan where the borrower pays only interest for a time, then pays increasingly more over the years; and income-contingent plans. Students should work with the holder of their loan to determine which plan works best for them. As life circumstances change, they can reconfigure their payment plan.

Avoid defaulting

Whatever students do, they should avoid defaulting on their student loan, Maloney says. Not only does default status harm a student's credit rating and future ability to obtain aid, it also jeopardizes the school's ability to secure loans to help future students.

 "Life happens," Maloney says. "But students should work with the holder of their loan to obtain a forbearance or deferment before going into default."

Students should keep in mind that they don't need to accept the total amount of loans offered to them. They can choose a minimum amount, and if they realize later in the year that they need the remaining funds, they can contact the Financial Aid office.

Lastly, students should live within their means and avoid credit card debt. Student loans are an investment in the future, not funds to buy the latest Coach bag.

"It's okay to be broke. Don't feel bad about it -- that's a student's life," Maloney says.

Students and parents can also find helpful information on the Financial Aid Web site including:

• an online debt calculator, which allows them to simulate repayment responsibilities using various loan scenarios;
• a worksheet for facilitating discussion and establishing a quarterly budget; and
• tips for saving money.