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Get a Grip on Student Debt

By Tracey Palmer

Here are the basics for dealing with your student loans and saving money along the way.

Even if you're not having a problem making payments, you should still consider loan consolidation--it's the single best way to save money.

Life is good. You have a job you like, a nice apartment, and even a decent car. With all your energy going toward the transition to the "real world," student loans might not be high on your list of priorities. But what happens if you don't pay your loans? Lots of unpleasant things. For starters, failing to pay your loans results in a bad credit history, and it means that the government could keep your annual tax refunds and garnish your wages. And you can be sure they'll never let you borrow from them again, which could be a problem if you're thinking about using federal loans to pay for graduate school. Sounds nasty, huh? If you need to get a handle on your college debt, and want to save money while you're at it, here are a few simple things you can do.

Use Common Sense
It might seem obvious, but pay your loans on time. This is one of your first chances to establish a good credit rating, which will be an important asset down the road. When you're ready to finance a new car or buy a house, your credit report is the first thing that loan officers will scrutinize. If you've made late payments--or missed some--they won't be eager to lend you a lot of cash.

It's also important to keep an organized file of your loan information. The simple rule is that you should save any and all documentation of your loans. This means original loan paperwork, letters and statements from your school and lender, and canceled checks. This way, if there's ever a problem, you'll have all the back-up material you need. Not to mention that it's easier to track your loans if you have everything in one place. Check periodically to make sure all your payments are credited accurately to your account, and remember to notify your lender if you move, so your current address and phone number are always on file. If you miss payments because your new repayment book is lost in the mail, you'll have to pay late fees, and your lender could put you in default (which means that you are not paying back your loans in accordance with your original loan agreement).

Consider Your Options
If you have trouble making your loan payments, don't just stash the unopened late notices in a drawer and hope they go away. Take comfort in the fact that you have options. For starters, the federal Department of Education has several payment plans. With the extended repayment plan, you can lower your monthly payment by stretching repayment over a longer time period. Or you could try the graduated plan, which starts you out with low monthly payments that increase gradually over time. If you're not making much money now, but expect to be making more in the next few years, this could be your best option. If you're just getting by, check out the income-contingent plan. If you can prove you're unemployed, you can apply for a deferment, which temporarily postpones your payments. But don't get too excited--you still have to make payments eventually.

Even if you're not having a problem making payments, you should consider loan consolidation if you have multiple government loans--it's the single best way to save money. The Department of Education offers loan consolidation programs.  In most cases, when you consolidate the interest rate goes down and so does your total monthly payment. Consolidation also simplifies your life. Instead of dealing with several payment books, schedules, and lenders, you'll have one repayment book and one contact.

Because consolidation involves averaging the interest rates of all of your loans, you might not want to do it if you have particularly high or low rates on your existing loans. In some cases, the consolidated payment rate will be higher overall than the old one. And if you're close to paying off your loans, you probably don't want to consolidate. It will just extend your payment period. If you're married, you should definitely consider this option because couples can usually combine their loans to get a better rate and lower monthly payments. There are private organizations that handle federal loan consolidation, such as Sallie Mae, or you can consolidate through the government. Interest rates can vary quite a bit, so do some research before you commit.

What if you still don't want to pay your student loans? You could always go to graduate school. If you're enrolled at least part-time, you can defer your undergraduate loans until you finish your degree. Of course, then you'll have to take out more loans. But unless you plan to stay in school forever, you're just postponing the inevitable. You have to pay sometime. So you might as well get a grip and start now.

Tracey Palmer teaches magazine writing at Suffolk University in Boston, where she earned her master's in communication.

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