5 easy tips will help you master your student loans

NEW YORK – Graduating into a barren job market is stressful enough. When massive student loans await, the rite of passage can be downright terrifying. "A lot of people are coming out of college with more debt than ever before, and they're graduating at a time when it's going to be harder to get job," said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit agency that runs the Project on Student Debt.
The group estimates that two-thirds of graduates from four-year universities have student loans, with an average debt of $22,000.
Still, Asher says that knowing your options can ease the burden.
Here are five steps to help master your student loans.

 Know what you owe

The first step is understanding how a student loan works. Although the interest rate on federal loans tends to be favorable, it kicks into gear as soon as the loan is taken out. That means you've got four years of interest on top of your loans by the time you graduate.
And the meter on interest doesn't stop running during the grace period before repayment begins. The exception is with subsidized federal loans, in which the government picks up the interest until the loan becomes due. Students need to demonstrate financial need to qualify for subsidized loans. Interest on unsubsidized loans begins accruing right away.

Pick a plan

The standard repayment plan for federal loans is typically 10 years.
Extended plans can be tempting because they require smaller monthly payments. But it also means you're paying interest over a longer period, which pushes up the total cost.
"Use as short a loan term as possible. You don't want to be paying your own student loans when your kids are graduating," said Mark Kantrowitz, publisher of FinAid.org.
If you can't keep up with the payment schedule, you can always switch plans. You're allowed at least one change a year with federal loans.
A new option for federal loans starting in July is the Income-Based Repayment program. Eligibility is determined by weighing your debt level against your income.
There may be no monthly payments required for those who earn less than a certain threshold, currently about $16,000 a year. Otherwise, your monthly payment is generally capped at 15 percent of your earnings above that amount.
Any debt remaining after 25 years is forgiven, unless you start making enough money that you no longer qualify for the program.

Try deferring payment

You can defer payment on federal loans under select circumstances, including military service, unemployment and economic hardship. With private loans, the rules on postponing payment (called "forbearance") are set by the lender.
Try to avoid delaying payment if you can because interest continues accruing unless you have a subsidized federal loan.
Graduate school is one way to defer payment on most federal or private loans, but that can backfire.
"It could add to your loan amount. And at some point, your loans will come due," said Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project.
To qualify for unemployment deferment on federal loans, you need to demonstrate that you're looking for work.
You could also qualify for economic-hardship deferment if your income is below about $16,000, you get public assistance or you work in public service.
Deferment for unemployment and economic hardship are each limited to three years.

Consider consolidating

A consolidation loan lets you combine loans to make a single monthly payment. You also get a fixed interest rate for the life of the new loan.
This might benefit those who got federal loans before July 2006, when interest rates were variable. You might even want to "consolidate" a single federal loan if it has a higher, variable interest rate.
If you've been out of school for a while and are running into trouble making payments, a consolidation loan is a way to get renewed deferment rights. Most federal loans can be consolidated under the Federal Direct Loan Consolidation program.
One drawback is that consolidation usually extends repayment, meaning the overall cost of the loan will be higher. A calculator on loanconsolida tion.ed.gov can help determine whether a consolidation loan will save you money.
There is no fee or cost to consolidate. Some federal loans, such as the Stafford and PLUS loans, might charge a fee that is deducted from the disbursement check, but there should never be an upfront fee.
Consolidation might not be an option if you have private loans because most private lenders are getting out of the federal loan business and generally trying to reduce risk.

Avoid default

Defaulting on a student loan comes with some ugly consequences.
To start, the default will go on your credit profile and likely obliterate your chances of getting any other type of loan, such as a credit card or mortgage.
That's because federal loans, with their favorable interest rates, are regarded as among the easiest to repay, said Kantrowitz of FinAid.org.
The cost of your loan will jump too. On top of late fees, you'll also be liable for collection costs, including court and attorney fees.
The government can also garnishee wages up to 15 percent, a practice that can follow you late into life. Student loans typically aren't discharged in bankruptcy filing either.

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