Candice Choi

Five tips to help new college graduates get a handle on repaying student loans

By Candice Choi
July 8, 2011

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The next test for college graduates is figuring out how to repay student loans. It’s easy to become complacent because the bills don’t start arriving until after a six-month grace period. If you don’t think you will be able to cover the bills when they start arriving, here are options that can make payments more manageable.

Extend payments: The easiest way to reduce monthly bills is to stretch payments over a longer period. Instead of repaying federal loans over the standard 10 years, borrowers might stretch payments over 25 years. If you had $35,000 in federal loans, the standard plan would require monthly payments of about $400. That’s compared with $240 under an extended plan. But the short-term relief comes at a price.

Under the first scenario, the total amount you’d repay would be $48,300. An extended plan would drive up the cost to $72,880. To see how different repayment plans would affect your debt, check out the US Department of Education’s calculator at

Keep in mind that if you switch to an extended repayment plan, you are not locked in. So make it a priority to switch back to a shorter plan.

Consolidate loans: Before the government overhauled its student loan program last year, borrowers could get federal loans from two sources. They could get Direct Loans from the government or Federal Family Education Loans from private lenders.

New graduates who have both can opt to consolidate their debt so they get one monthly bill. In addition to streamlining payments, a consolidated loan can reduce the monthly payment. The repayment period can be up to 30 years.

Graduate payments: If you’re entering a field such as medicine where you expect your pay to rise relatively quickly, another option is a plan that increases payments over time. Under a graduated plan for federal loans, payments start lower than they would under the standard plan. The payments then increase every two years.

Defer payments: This is an option for borrowers who are continuing on to graduate school, enlisting in the military, unemployed, or earning below about $16,000 a year. Anyone on public assistance or who works in public service is also eligible. If you don’t qualify for deferment, you can still apply to postpone payments on federal loans under what’s called “forbearance.’’ You may be able to make interest-only payments during forbearance to keep the amount you owe from ballooning. With private loans, it’s up to the lender to decide whether to allow a postponement.

Enroll in income-based repayment: With federal loans, strapped borrowers should check if they qualify for this program. It caps monthly payments at 15 percent of earnings above around $16,000; those who earn less may not have to make monthly payments. Debt remaining after 25 years is also forgiven.

To figure out whether you qualify, check the calculator at .

Choi writes for the Associated Press.