Give Yourself a Graduation Present

03/12/2012 10:45 am EST


Terry Savage

Author, The Savage Truth on Money

It’s harder to make federal student loans go away than almost any other kind of debt, so it makes sense to consider your options and start paying them off now, writes personal finance expert Terry Savage.

College students are graduating into mountains of debt—and without anything near the income to start dealing with that debt.

But here’s a graduation present for every college student—a new Web site, just created by the college debt experts at Simple Tuition.

It’s called—and it is the one site where you can gather all your student loans, figure out the required repayments, and most importantly—where you can compare the monthly payment changes and total cost changes of all the repayment plans available to you, including Income-Based Repayment. Most people don’t know that they have options to lower their payment burden simply by selecting a different plan.

Face Up to Student Loans
There is now as much student loan debt outstanding as credit card debt—around $870 billion!

While a college education will eventually pay for itself, and more, current graduates are finding it tough to start repaying in today’s tough job market. A new Federal Reserve report shows that as many as 27% of the 37 million student loan borrowers have past-due balances of 30 days or more.

But unlike credit card debt, student loan debt is not discharged in bankruptcy. Eventually, the government may take repayments from your Social Security check! Surely, it makes sense to get started on the right, affordable repayment plan now.

Given the current annual Federal loan limits, it is common for students to graduate with $27,000 of Federal student loans—not to mention additional private loans, or parental PLUS loans.

You are required to start repaying these loans within six months of graduation. And you’ll be hearing from the private loan servicing companies hired by the government to collect Federal loans as your repayment date approaches. There may be more than one, depending on your outstanding loans.

The one course they don’t teach in college is how to deal with these loans—although seniors may have a brief meeting with the college finance office, stressing the importance of loan repayment. Then it’s up to you.
That’s where comes in. First, visit the Web site just to get a general idea of the possibilities.

Then, you can come back and create your own secure account, where you can input each of your specific loans. There’s even a direct link to the NSLDS service (National Student Loan Data System), where you can find all your Federal student loans, the total amounts, and the rates.

The point of PayBackSmarter is to show you the range of options for student loan repayments—and the monthly and overall cost for both subsidized and unsubsidized Federal loans, as well as your private loans. (Private loans made directly through banks rarely allow repayment adjustments, but do impact your overall finances and so should be included in your repayment decisions. )

This Web site makes it simple. Here’s an example of the choices for a student who graduates with $18,625 in Federal student loan debt.

With a click you get a bar graph showing the repayment costs and comparisons of various repayment programs. The first step is a look at the standard, ten-year repayment plan:

Standard loan repayment (10 years):

  • Monthly cost: $214
  • Payoff year: 2022
  • Total cost: $25,720

A consolidation plan lowers the monthly payment, but extends the term of the loan for five years. It’s more costly over the long run.

Federal loan consolidation (15 years):

  • Monthly cost: $166
  • Payoff year: 2027
  • Total cost: $29,899

Or you could choose a graduated repayment plan, which lowers the monthly bills in the first few years, while you’re getting started, but raises them in the later years—so you’re still finished on time in ten years.

Federal Graduated Repayment Plan

  • Monthly cost: $148 (first year), rising to $320 in 9th and 10th years
  • Payoff year: 2027
  • Total cost: $27,214

There are many other options—and you can calculate the impact of each on this Web site. The Income-Based Repayment Plan is one of those options for reducing payments, although you must have at least $30,000 in debt and a very low income to qualify.

On the plus side, if you add an extra $50 a month to the standard repayment plan, you will save nearly $2,000 in interest—and pay off your debt two years early! And more, and you’ll be out of debt even sooner and at a much lower total cost.

When it comes to student loan repayments, you can’t choose the right plan for your situation unless you can study all the options in one place. It’s about time someone made it easy. That’s what does. And that’s The Savage Truth.

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