Statistics tell us that the typical student graduating from a four-year college has eight to 12 federal and private student loans, according to Mark Kantrowitz, senior vice president and publisher of Edvisors and author of "Filing the FAFSA."
"It is easy for one of those loans to get lost and, inadvertently, go into default," explained Kantrowitz
Last week, we talked about the consequences of default.
This week, let's discuss some tools that can prevent default.
The first step is to get a handle on all the loans outstanding. The best way to do that is to access the National Student Loan Data System (NSLDS) online at https://www.nslds.ed.gov/nslds_SA/. NSLDS, the U.S. Department of Education's central database for student aid, receives data from schools, guaranty agencies, the Direct Loan Program and other Department of Education programs.
There you will find a list of the student's federal education loans and loan servicers, but not the parents' PLUS loans. Parents can log onto the same NSLDS site to look up their PLUS loans using their own PIN numbers, not the student's.
Another resource is the college's financial-aid office. You also can access this information through the three major credit bureaus. Students can get a free copy of their credit reports once a year at www.annualcreditreport.com.
Second, review the loans. Make a list of them, noting the payments due and payment due dates. Put the due dates on a calendar.
Third, make sure the student's address is noted correctly on the loan servicers' records. If mail is not received by the borrower, that's no excuse for delaying payment.
Fourth, don't wait for a letter from the lender asking for money. Again, payments are due on time even if the student is not notified of due dates or payment amounts.
Fifth, decide on a repayment plan. The default is a standard 10-year repayment plan, which has the shortest repayment terms. Here is a rule of thumb from Kantrowitz: "So long as the total student loan debt is less than the borrower's annual income, the borrower should be able to afford the monthly loan payments under standard repayment."
Sixth, automate repayments. Each month, the graduate's bank should be debited in the amount of the monthly payment due to the lender. Automatic debits will help prevent tardy or missed payments. Plus, some lenders reduce the interest rate due on the loan when an auto-debit is set up. The reduction can be as much as 1/2 of 1 percent.
Seventh, to simplify matters, graduates with many loans might consider consolidating them. However, it's important to review terms before doing that. For more information on consolidating federal student loans, go to StudentLoans.gov. For private consolidation loans, go to www.PrivateStudentLoans.com.
Eighth, consider accelerating repayment of the loans. Graduates need to be aware that there are no prepayment penalties on student loans, both federal and private.
Ninth, if a co-signer needs to be released, consider private consolidation. The student can go to a bank to refinance his or her loans on his or her own credit record without the co-signer. Federal education loans do not require co-signers, so there's no need for co-signer release on federal loans.
Tenth, understand tax breaks. Student loan interest payments are tax-deductible. Up to $2,500 in interest paid on federal and private student loans can be deducted on federal income-tax returns each year. There is no need to file a Schedule A for itemized deductions in order to claim the student loan interest deduction.
Eleventh, understand when to get help. If the graduate runs into a problem making payments, don't be silent. Talk to the lender. Help is possible through deferments and partial forbearances (temporarily suspending repayments of principal; requiring interest-only payments).
Twelfth, federal student loan borrowers need to study the official U.S. Department of Education site at https://studentaid.ed.gov.
Another resource is www.edvisors.com. Edvisors publishes free sites of continually updated information as well as tools to help students and families plan for and pay for college.
Next week, let's talk about applying for student loans.
Julie Jason welcomes your questions/comments (readers@juliejason.com).
Donate to the newsroom now. The Salt Lake Tribune, Inc. is a 501(c)(3) public charity and contributions are tax deductible