A guide to navigating through the murky waters of student debt
May 20, 2009 3:30 PM
The average student at SF State graduates with around $10,000-12,000 in debt, according to studentaid.ed.gov -- which isn't bad, considering the school's instructional fees are about one-tenth the cost of some universities.
Still, debt is debt.
Here are some terms and options to consider before student loans come back to haunt you in about six-to-eight months:
Interest: A loan expense charged by the lender and paid by the borrower. It's calculated as a percentage of the unpaid principle. Keep an eye on your interest rate and always pay on time.
Principal: The amount of money borrowed -- always nice to get that big check in the mail.
Subsidized: A loan the government pays the interest on while you are in school. The current interest rate is fixed at 5.6 percent.
Unsubsidized: A loan that the borrower is fully responsible for paying the interest. Interest begins from the date of disbursement. The current rate for a Direct Unsubsidized loan is fixed at 6.8 percent.
Grace Period: After you graduate, leave school or dropout, loans that were taken out have several months before payments are due. Start saving now.
Default: Don't go here. This is the failure to repay a loan according to the terms agreed when you signed a promissory note. This will lead to bad credit for as long as seven years. Good luck getting that car.
SF State financial advisors said the number one reason students go into default is because they move and forget to update their address.
Now that you are familiar with the lingo, you can change plans to suit your financial circumstances. Here are some options to look over:
Loan consolidation: Get organized. A simple application can help you to combine existing Federal education loans into one consolidated loan -- a great option if you have a hard time organizing bills.
Deferment: Temporary suspension of loan payments for specific situations such as unemployment or reenrollment in school. Graduate school is starting to look better than an entry-level position in this economy.
Economic Hardship Deferment: Given for a maximum of three years and determined by a debt-to-income ratio, economic hardship is defined by federal regulations. You also must be working full time to qualify.
Forbearance: A temporary postponement or reduction of payments. It's different from deferment because interest will accrue.
Graduated Repayment Plan: The payments start low and, depending on your loan agreement, can increase every two years (but not to exceed 10 years).
Income-Contingent Repayment (IRC) Plan for Direct Loans: Your monthly payment is based on annual income, family size and total amount of direct loans. You have 25 years to repay and the unpaid portion is forgiven.
Information from studentaid.ed.gov and sfsu.edu.
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