When The College Bill Comes Due

My post today is aimed at seniors … college seniors, who will graduate in about six months and head out into that mythical “real world.” Aside from the need to find gainful, hopefully satisfying employment, that real world includes one very sobering reality: debt.

I’ve written a number of rants here about the perils of student loan debt. Of course, the lure of “easy” money can be almost impossible to resist when faced with huge college expenses and woefully short finances. I won’t cite the figures here; you can check them for yourself. The level of loan debt in this nation is positively staggering.

The usual scenario is that while a college student is attending school full-time, his/her loan payments are deferred. However, once the student graduates, withdraws, or does not attend graduate school (even this latter option might not fend off payments), the money monster begins to materialize in full force.

Most student loans have a six-month grace period that starts after the student leaves school, and payments are not due until the grace period ends. For students that graduated in the spring, this means student loan bills start arriving in November and December. So, in addition to you college seniors who are heading down the straightaway to graduation, I’ll address those of you who are among the Class of 2017. Your personal money monster may have already made introductions.

Accordingly, that’s why I want to share some professional wisdom with you here from Joe DePaulo, CEO and Co-Founder of College Ave Student Loans about repaying student loans. Time to take notes.

Student Loan Repayment:

Four things recent (and about to be) graduates need to know.

Tips from a financial industry veteran:

– Get a copy of your credit report if you are not sure which loans you have or who is servicing them. You can usually get a copy for free, and any federal and private student loans in your name will be listed there.

You’ll also be able to see who is servicing your loans if you need more information. Make sure to reach out to your student loan servicer(s) if you have not heard from them to confirm your contact information is up to date, when your first payment is due, and your available options to make payments.

– Understand capitalized interest and how it affects your loan(s). If you chose to defer your student loan payments while in school, your loans most likely accrued interest during that time. After you leave school and your repayment period begins, the unpaid interest is typically capitalized.

When that capitalization occurs, the interest charges that accrued during deferment are added to your loan amount. That means your new total balance when you start repayment is the amount you borrowed plus the interest charges that accumulated while you were in school.

After the interest is capitalized, future interest charges will be calculated based on your new total balance, so essentially you will pay interest on the interest you accrued during school. If you can afford to pay some or all the accrued interest during your grace period, you can minimize the interest that is capitalized and reduce the total cost of your loan.

– Take interest rate reductions. Consider setting up automatic payments. Not only will this help you build good credit by avoiding missed or late payments, many lenders also offer a rate discount when you enroll in their automatic payment programs.

– If you’re having trouble making payments, reach out for help. Don’t ignore the problem or assume that you can’t resolve the issue. Reach out to your loan servicers immediately to discuss your situation and try to find a plan to get on track.

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The bottom line here is: Act now and act smart. Hoping that some miracle will occur that will eliminate your loan debt is science fiction of the dangerous kind.

Don’t risk your future borrowing power, credit rating, and peace of mind by continuing to sweep your loan obligations under the rug. Eventually, you’ll trip over that big rug bump and your landing will be anything but soft.

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Be sure to check out all my other articles on the College Confidential Web site.