The Top 10 Student Loan Tips for Recent Graduates

Whether you are graduating or just taking a break from college, these tips are designed to help you stay on top of your student loans. They can help you avoid having to pay added interest costs and fees, protect your credit rating, and preserve your eligibility for more financial aid.

1. Know Your Loans: For each loan, it's important to keep track of who your lender is, your loan balance, and your repayment status. These details often determine your options for loan repayment, forgiveness, and discounts. If you don't know, try visiting www.nslds.ed.gov. You'll need your PIN number from filing your FAFSA. Its okay if you don't remember your PIN: you can always request a duplicate from the Department of Education. Once you log in you can find out-for your federal loans--your total loan amounts and your lender(s), and the repayment status for each loan. If some of your loans are not listed, they are probably private (non-federal) loans. Try to find the paperwork that you signed; contact your school if you cannot locate any records.

2. Know Your Grace Period: Different loans have different grace periods (the period between leaving school and the due date of your first payment). For Perkins loans the grace periods is nine months; for Stafford and most other federal loans it's six months.

3. Pick the Right Repayment Option: When your federal loans come due, your loan payments will be based on a standard 10-year repayment plan unless you specify otherwise. If the standard payment is going to be hard for you to cover, there are helpful deferments as well as other repayment plans and options, including graduated and extended payments. Graduated payments start out low and increase every two years. Extended payments stretch out the repayment period, so you owe less every month - but you pay more in interest in the long run. Another option is to enroll in an Income Contingent Repayment plan, where your loan payments are based on your income, so you won't have to pay more than you can afford. In July 2009 the Income Based Repayment program, which is more generous than the current income-related options, will become available.

4. Stay in Touch with Your Lender: Whenever you move or change your phone number, make sure to tell your lender right away. If a lender needs to contact you about your loan, and your information isn't current, it can negatively affect your repayment status and end up costing you a bundle. If you are getting (unwanted) calls from your lender or a collection agency, don't stick your head in the sand! Talk to them about the issue: lenders are supposed to work with borrowers to resolve problems. Ignoring bills or serious problems can cause your loan balance to grow quickly and dramatically.

5. Remember that You Have Options: If you're having trouble making payments, don't panic. Whether it's due to unemployment, health problems, or going back to school, there are legitimate ways to postpone your payments. You can write or call your lender and request a deferment for certain situations, and interest will only accrue on your unsubsidized loans. Forbearance can also be used to temporarily stop or reduce payments, but beware: interest keeps accruing on both subsidized and unsubsidized loans.

6. Stay out of Trouble! Ignoring your student loans has serious consequences that can last a lifetime. Loans are delinquent after they have gone unpaid from anywhere between15 days and nine months. A loan that is still unpaid after that has defaulted. Once you default on your loan: your total loan balance (principal and interest) becomes due; you will have a major black mark on your credit report; you are no longer eligible for federal education grants and loans; you will owe large collection fees (up to 18.5% on your total loan balance); your wages (and eventually your Social Security check) may be garnished; and your tax refund may be seized. Bottom line: avoid default. Talk to your lender if you're in danger of default. You can also find useful information at studentloanborrowerassistance.org.

7. Lower Your Principal Balance if You Can: When you make a loan payment, that amount first covers any late fees, then interest, and finally the principal balance. If you can afford to pay more than your required monthly payment, you can lower your principal balance, which will reduce the amount of interest you have to pay. Include a written request to your lender to make sure that the extra amount is applied to your principal. Make sure you keep copies for your records, and check back to be sure the payment was applied correctly.

8. Pay Off the Most Expensive Loans First: When it comes to keeping up with monthly payments, you can't afford to miss one on even the smallest loan. But if you're considering completely paying off one or more of your loans, or trying to reduce the principal, start with the one that has the highest interest rate. If you have private loans in addition to federal loans, start with your private loans, since they almost always have higher interest rates and lack the required repayment options and other benefits of federal loans.

9. What Consolidation Means for You: In addition to your student loan bills, you may get sales pitches in the mail or online promising lower loan payments or other benefits if you "consolidate" your loans. A consolidation loan combines multiple loans into one for a single monthly payment with a single interest rate. However, not all offers are created equal, and you can only consolidate once, so do your research on whether consolidation is the right thing for you. If it is, be sure to shop around to get the best deal. Important warning: do not combine federal and private loans when you consolidate, or you will lose all the borrower protections -- like deferment and forbearance -- that come with federal loans.

10. Loan Forgiveness: There are various programs that will forgive some or all of your student loans if you do certain kinds of work, like being a teacher in a low-income school, or serving in Americorps or the Army National Guard. There is also a new, broader federal public service loan forgiveness program that will go into effect in July 2009. Each program operates independently and has it own requirements. For a comprehensive list of loan forgiveness programs by state, click here.