Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 3, 1995 TAG: 9507030006
SECTION: BUSINESS PAGE: A12 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
For many of these new graduates, this is the first time they have borrowed money. They many not be fully prepared for managing repayment.
``Many students don't think about repaying their loans during school, but it's important to remember that the money borrowed to help finance a college education comes due shortly after graduation,'' according to Lydia M. Marshall, executive vice president of Sallie Mae, the nation's largest holder and servicer of federally guaranteed student loans.
Marshall said borrowers can do several things to make the repayment experience easier. By developing good repayment habits, she said, some borrowers may be able to reduce their borrowing costs significantly.
Here are suggestions from Marshall to help new graduates better manage their debt.
Know your rights and responsibilities.
Your college financial aid adviser should have held an exit interview prior to graduation to give information about your repayment responsibilities and available repayment options. Your college is also required to provide you with a disclosure statement outlining the estimated monthly payment and the total principal and interest payment over the term of the loans.
Start now putting aside some money each month to cover your upcoming payments. The payments typically begin six months after graduation, but start saving money from your first paycheck so the repayment will be included in your budget.
Evaluate your repayment options just after graduation to determine which option is best for you.
Check with your lender or loan holder to see what repayment plans are offered, such as graduated repayment, loan consolidation and income-based repayment plans.
It's important to choose the program that best fits your budget to ensure you can stay on top of your student loan payment. But you should pay as much as you can manage to keep the cost of repayment to a minimum.
If your lender doesn't have a consolidation loan as good as the one offered by the government, you should call the government about loan consolidation plans at 1-800-455-5889. But, first, you are required to shop among private lenders to see if they offer better terms.
Consolidation allows you to package all of your loans into a single debt at a lower payment. The government interest rate floats but can never go above 8.25 percent.
Don't consolidate if you can handle your monthly payments because it will just take you longer to get rid of the debt.
Set a pattern of good repayment habits for possible savings.
Managing your repayment obligations is critical to establishing and maintaining a sound credit history, Marshall said. That's why it's important to set up a budget and stick to it.
If you loan is sold to Sallie Mae, you may qualify for one or more programs that reward timely repayment of the loan. For example, Marshall said, Stafford loan borrowers who make their first 48 scheduled payments on time will receive a reduction by 2 percentage points in the interest rate they pay for the remainder of the loan's term through the ``great rewards'' program.
Sallie Mae also rewards timely repayment through its ``great returns'' program. It provides that borrowers who make their first 24 scheduled payments on time receive a credit to their accounts equivalent to all origination fees paid to the federal government in excess of $250.
Keep all loan documents you receive in one place, especially the disclosure statement which gives you all the information about the terms of your loan.
Know who holds your loans and who services your loans. Your loan holder and servicer may not be the same company.
Marshall said many loan holders contract with servicing agents to collect payments and otherwise administer their student loans. It's up to you to keep track, so pay special attention to information you receive in the mail.
Notify your lender regarding any changes. It is your responsibility to update any changes to your name, address, telephone number or Social Security number.
Maintain a good credit record. Find out if your loan servicer will automatically deduct payments from a checking account. By making your monthly payments electronically, you can be confident you will never be late.
Sallie Mae offers the ``direct repay'' plan that gives borrowers who elect to make their student loan payments electronically a one-quarter percentage point interest rate reduction.
If you are not able to make a full payment during any given month, contact your loan holder and work out a repayment plan. The alternative, possibly going into default, can damage your ability to get another loan or even to buy a house.
If you are unable to make your monthly payments because you are returning to school or because you are unemployed, apply for a deferment. This temporary postponement of payments will ensure that you do not default on your loan. A deferment may take 30 days or more to be processed, so file as soon as possible.
nDon't hesitate to ask questions. Your school, your lender and your loan holder are all available as sources of information. Ask questions about things you don't understand, and, if necessary, request a different repayment plan.
by CNB