Student Loans Can Be Worse Than Credit Cards

7:37 AM, Aug 2, 2012   |    comments
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Really, $1 trillion in student loans for a bunch of tuition, used books and Ramen noodles? But now that many college grads -- and those who left college with loans but no diplomas -- have the debt, how do they pay it off?

Oddly, the real trouble can start in the summer as college grads look for jobs, start new lives in other cities and leave college bills behind. Come winter, some students forget they owe the money.

Regular payments for most student loans are required after a six-month grace period -- and for many spring college grads, that's November or December.

"Sometimes, they just forget because it's been six months since they graduated," said Mark Kantrowitz, publisher of and

As a result, student loan debt has the potential to be far more burdensome than credit card debt. College grads who are burdened by student loans -- and those who borrowed but did not graduate -- typically cannot simply file for bankruptcy protection to make student loans go away.

It's essential to review options and not just hope that somehow things work out.

Line up a list of your loans and study various repayment options.

Borrowers with private student loans often reported that lenders would not modify or adjust repayment terms, according to a federal report.

It is easier to find help with federal student debt. But Sallie Mae, a leader in student loans, said some options for private loans exist, such as reduced monthly payments, interest-only payments, extended repayment schedules and temporary interest-rate reductions during a hardship. Options depend on a customer's circumstances, said Patricia Nash Christel, a spokeswoman for Sallie Mae.

If you're taking out loans, remember it is far better to exhaust federal student loans first before obtaining private loans.

Some repayment strategies:

• Know what you owe.

See the Student Debt Repayment Assistant at . At this site, you have a direct link to the National Student Loan Database System for Students to find a list of all federal loans made to you.

• Understand there's more than one way to pay off a student loan.

What if you're working but you're not making a lot of money? Say, delivering pizzas?

A graduated repayment plan for federal student loans can offer a way to start off with low payments and have payments increase every two years. The first year's payments can be as low as half of the payment under the standard 10-year plan.

This strategy would cost more money in the long run.

But Patrick Kandianis, co-founder of in Boston, said a graduated payment plan can create more breathing room in a tight budget.

Consider this example: On $28,000 in student loan debt, the standard repayment would be about $322 a month.

If you switch to a graduated repayment plan, the payment drops by $100 to $222 a month for the first two years.

The payment goes to $270 a month for the third and fourth year. Down the road, payments would near $400 and $500 a month in the last four years of a 10-year plan.

This option works best if you do find a better-paying job or other access to more money down the road.

In graduated repayment, no payment will be more than three times the first payment.

In this example, it would cost about $2,300 more in interest under a graduated plan, compared with a standard repayment plan, Kandianis said. But again, it's a way to avoid bill collectors.

"The ability to avoid default is probably worth it," he said.

• What if your other bills are high and you really have very little to pay toward student loans?

An income-based plan can hold down payments for federal loans. It bases the payment each month on how much discretionary income you have after major expenses. Currently, the payment could be up to 15% of your discretionary income.

Income-based repayment is available for all federal loans, not just direct loans. But not every lender offers it, so Kantrowitz said borrowers who want it and find that their lender doesn't offer it can consolidate into the Direct Loan program to get it.

If the borrower's adjusted gross income is less than 150% of the poverty line, the monthly payment is zero. You'd be able to extend payments up to 25 years and the remaining debt and interest would be forgiven after 25 years in repayment.

The downside is that interest is building and you could be digging yourself into a deeper hole.

Many students may have had a chance to learn more about loan options during exit counseling when they graduated. But some skip that course.

Summer isn't exactly when most grads want to think about upcoming bills. But $1 trillion is a good reminder, at least, to mark the calendar for when the first bill is due.

Contact Susan Tompor: 313-222-8876 or

More Details: How can you pay off student loan debt?

• There's a shortcut to the student loan checklist at /studentloanchecklist .

• There are options to postpone making payments, such as deferring student loans if you're jobless, in school at least half time, taking a parental leave from work or you're in the armed services or Peace Corps. In a deferment, the payments stop and the federal government pays the interest on subsidized loans but interest continues to accrue on unsubsidized loans. See

• You may be able to request forbearance if you can't qualify for a deferment but interest does build while in forbearance even though payments aren't required.

• See for more information on Stafford Loans.

More Details: Questions, answers on student loans

Paying down college debt continues to be a challenge for many in metro Detroit. The Free Press hosted a Web chat with experts on Monday about student loan debt. What follows is an excerpt of the Q-and-A session. You can see the entire chat at /studentloanchat .


QUESTION: Are there still programs available to registered nurses who work at inner-city hospitals? ... Kelly.


ANSWER: Kelly, the National Health Services Corps still provides loan repayment assistance and scholarships to primary care providers serving in national need areas. Please visit its website at http://nhsc .hrsa .gov to check whether your particular educational program and hospital qualify, said Mark Kantrowitz, publisher of FinAid .org.


Q: I have just been placed on disability. How can I possibly pay back all my student loans? Thanks in advance. Rusty Roy.


A: Rusty Roy, I am so sorry to hear that and wish you well. Like federal student loans, Sallie Mae's Smart Option Student Loan (a private education loan) offers forgiveness in the event of total and permanent disability, said Martha Holler, Sallie Mae spokeswoman.


A: Rusty, for federal loans, choose the income-based repayment plan. If you default on your federal loans, the government can garnish up to 15% of your Social Security disability benefits, said Kantrowitz.

Kantrowitz said to visit for information on the Total and Permanent Disability discharge for federal education loans. Your disability has to be permanent in nature, preventing you from working, to qualify.


Q: So there are two schools of thought - tackle smaller loans to feel accomplished despite the interest rate and snowball your payments into the next loan or focus on the highest interest rate regardless of the size of the loan. What are your thoughts? ... Tina.

A: Tina, hit the most-expensive ones (with highest interest rates), first unless you have an easy victory with a smaller one. This can be an emotional win, but better to attack the costly (rate) ones first, said Patrick Kandianis, co-founder of SimpleTuition. You can also check out to see that impact, too.

By Susan Tompor
Detroit Free Press Personal Finance Columnist



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