How Some States Are Fighting to Protect Student Loan Borrowers

Some states are looking to add Bill of Rights laws to help keep student loan borrowers from drowning in debt.

The student loan crisis is starting to feel a lot like the housing crisis of the last decade, warns Illinois State Attorney General Lisa Madigan — a swelling economic disaster with millions of fragile borrowers unable to get timely help or good advice. If that seems like an overstatement of the situation to you, consider this: A stunning 1-in-3 student loan borrowers are late on loan payments, and several studies show struggling borrowers often don’t know about programs designed to lower their monthly payments.

Unwilling to wait for reforms from Washington, D.C., Illinois and other states are taking matters into their own hands by passing new consumer protection laws called the Student Loan Borrower Bill of Rights.

“There’s been almost no oversight of the student loan industry,” says Madigan, adding that student borrower complaints to her office have skyrocketed right along with the total outstanding student loan burden, which now sits at $1.4 trillion, owed by 44 million Americans.

Madigan helped craft her state’s legislation, which was inspired in part by a recent lawsuit filed by Illinois against Navient, the nation’s largest servicer. The measure recently advanced out of a Senate committee there.

Another Looming Financial Crisis?

“This is work we really didn’t think would ever come our way. But it resembles the mortgage foreclosure crisis. There are many of the same problems, like poor customer service, lost paperwork,” she said. “It’s very clear there is a need for enhanced consumer protections and clear servicing standards.”

The Illinois lawsuit accuses Navient of steering struggling borrowers into forbearance rather than providing them with adequate information about cheaper repayment plans. (Navient says the allegations are “unfounded.”)  But other research shows borrowers clearly aren’t getting the message about available options. In 2015, a study by the GAO found that 51% of people making their student loan payments would have qualified for lower payments, but only 13% of the borrowers knew to ask for the lower payments.

Since good advice can be hard to get, borrowers are “increasingly turning elsewhere for help, including to scam artists who exploit desperate borrowers, much like they did during the mortgage crisis,” Madigan’s office said in announcing its legislative victory.

Need Help With Your Student Loans?

If you’re falling behind on your student loans and aren’t sure what options are available to you, you can check out whether you’re eligible for a student loan forgiveness program or repayment plan. You may also be considering deferment or forbearance of your student loans until you can get your finances in order. Just keep in mind as you sort through the potential options that your student loans have an impact on your credit scores, which can affect your financial goals in both the short and long term, so make sure you keep up with payments as best you can and communicate with your loan servicer to see what options might be available to you.

Enter the Student Loan Bill of Rights Laws

Were the Illinois law to pass, the state would join Connecticut and Washington, D.C., which recently enacted Student Loan Bill of Rights laws. Several other states are weighing similar legislation.

The new laws generally require loan servicers to obtain a license in each state, which gives state watchdogs additional oversight capabilities. The laws also create an ombudsman who can receive and act on complaints from residents, and critically, states set requirements that good advice be shared with borrowers.

States are jumping in because prospects for a national student loan bill of rights, introduced by Sens. Dick Durbin and Elizabeth Warren in the last Congress, are unlikely with the current leadership in Washington.

Obama-Era Protections Killed

Also adding urgency are criticisms that Betsy DeVos, the new head of the Department of Education, has rescinded Obama-era rules that opponents say would have helped protect borrowers. On May 8, 21 state attorneys general sent an open letter to DeVos criticizing her rollback of the new rules.

“DeVos has removed those protections and prioritized the profits of servicers over helping struggling student loan borrowers,” Madigan said. “The need for Illinois to put in place a Bill of Rights is because there won’t necessarily be protections at the federal level.”

The Department of Education didn’t immediately respond to a request for comment.

Should Illinois and other states succeed in passing such laws, they would all be in the odd position of trying to regulate federal student loans and firms working under contracts with the federal Department of Education.

It’s an open question, however, if states can really regulate federal loan programs. Supporters of the bills say states have the right to protect their residents from fraud and abuse, but it’s possible that loan servicers could ultimately challenge their authority in court.

Navient directed questions for this story to the Student Loan Servicing Alliance, which criticized what it said could become a patchwork of laws.

“Servicers help student loan borrowers repay their education loans, and avoid the negative consequences of serious delinquency and default,” said Winfield P Crigler, executive director. “This work is best achieved in a clear regulatory environment. The U.S. Department of Education, which is the lender for more than 90% of new student loans, already uses its regulatory and procurement powers to supervise federal student loan servicers. We believe state regulation of student loan servicing will conflict with federal policies and requirements, and will be a detriment to the very borrowers we intend to help.”

But supporters point out that state-level consumer protection laws can be more effective.

State-Level Consumer Protections Could Help

“Consumer protection at the state level fills critical gaps when the Feds are asleep at the switch. Many states are frustrated that the Education Department has been too cozy with the student loan industry, so they’re looking to protect borrowers in their state,” said Rohit Chopra, senior fellow at the Consumer Federation of America.

States are taking other steps, too. California is considering a law that would cap private student loan debt garnishment at 15% of wages, for example. Several other states have enacted programs making it easier for student loan holders to refinance.

Chris Lindstrom of the Public Interest Research Group welcomes the flurry of state-level activity. Federally, the job falls to the Consumer Financial Protection Bureau, which she fears may lose its authority or influence soon.

“It’s onerous (regulating) the student loan space, especially when looking at the scope of the problem. It’s good to have more eyeballs on what’s going on,” she said. “Then there’s also the whole hedging bets situation, since nobody knows what the next Congress will mean for the CFPB.”

Lindstrom said the state-level ombudsman would be the most tangible and helpful change for borrowers.

“Having a place where you can go to complain and having that complaint count,” she said.

State-level laws would apply only to state residents: An Ohio resident who studied at the University of Chicago would get no relief from the Illinois bill, for example. On the other hand, an Ohio State graduate living in Illinois would be protected.

Ultimately, however if a critical mass of states pass and enforce new rules, the impact could ultimately be nationwide.

“If a slew of large states enact similar legislation, this could be the medicine the industry needs to treat borrowers fairly nationwide,” Chopra said. “We saw a similar approach a decade ago with toxic mortgage lending, where states looked to protect homeowners through new state laws.”

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9 Questions to Ask About Student Loans Before You Graduate

Graduation's around the corner, so don't put off asking the hard questions about how to handle your student loan debt.

It may not be your first priority, but preparing to repay your student loans should be on your pre-graduation to-do list. How you manage your student loan payments will shape your finances for decades to come, so know what you’re dealing with before you get swept up in the day-to-day demands of post-graduate life.

Before you leave school, also make sure you know the answers to the following questions. Good news: We’re giving you them (or at least telling how to find them on your own).

1. What Kind of Loans Do I Have?

You either have private student loans or federal loans. You can look up your federal loans using the National Student Loan Data System (NLDS). You should have the paperwork from your lender or student loan servicer (private and federal) from when you took out the loan. Private loans generally come from traditional banking institutions, while federal loans are issued by the government. Common federal loans include Direct subsidized loans, Direct unsubsidized loans and Perkins loans.

2. Whom Do I Owe?

You can find this information in the resources referenced above. Your financial aid office should have information on file as well, since they receive the money. If you haven’t gone through student loan exit counseling at school, you need to before you graduate. They’ll explain whom to pay, and it’s the perfect time to ask any questions. Once you know who’s managing your loans, set up an online account to access all your information.

3. What Are My Repayment Options?

This depends on the type of loans you have. Private student loan repayment tends to follow a typical installment loan repayment structure, in which you make monthly payments for a fixed loan term. Federal student loans offer more options. The default play is called standard repayment: fixed monthly payments for 10 years. If you want a lower monthly payment when you start out, you can change your repayment plan at any time for free, though the change may not take effect immediately. If you want to enroll in an income-driven repayment plan, graduated repayment or extended repayment, be sure to request a new plan through your student loan servicer as soon as you can. You can learn more about student loan repayment options here.

4. How Much Are My Monthly Payments?

For loans with a set repayment term, the payment will be the same every month if you have a fixed-interest rate (as all federal loans do), or your monthly payment amount will change if you have a variable-interest rate (as some private loans do). Monthly payments through income-driven plans will depend on how much money you make. You should be able to get this information from your lender or servicer.

5. When’s My First Payment Due?

Federal student loans generally have a grace period of six months, meaning your first payment comes due six months after you graduate, leave school or drop below half-time enrollment. Some grace periods are nine months. If you have a private lender, you may not have a grace period — find out as soon as possible.

6. How Do I Pay?

You’ll start hearing from your lender or servicer soon if you haven’t already. Like most bills, you can go the old-school route of sending a check, or you can pay online. Keep in mind you don’t have to wait till your grace period ends to make a payment, and you can also enroll in automatic payments to make sure you don’t miss any. On that note: You don’t want to miss any student loan payments, because it will damage your credit, and your credit score plays a role in how much you pay for other credit products, as well as renting a home or buying a cellphone. You can keep tabs on how your student loans are affecting your credit by getting two free credit scores every month on Credit.com. If you’re thinking about getting a credit card after college, here are a few good options for new grads.

7. What’s My Interest Rate?

This should be in your loan paperwork and in your online account. Make sure you know if it’s a fixed- or variable-interest rate.

8. How Can I Make Repaying My Loans Easier?

If you have multiple federal student loans, which most borrowers do, you can consider consolidating them. With a federal Direct consolidation loan, you can qualify for certain loan forgiveness and loan repayment options (though you may not have to consolidate to qualify), and you’ll only have to make one monthly payment, rather than several to multiple servicers.

You could also consider refinancing multiple loans with a private lender, but know that you’ll be giving up many of the benefits that come with federal loans if you do this. There is no federal refinancing option. You can also enroll in automatic payments to make your life a little easier — just be sure to check that it goes through every month and that your bank account has enough money to cover the bill.

9. How Can I Make My Loans More Affordable?

Among the benefits previously noted, enrolling in automatic payments usually gets you a 0.25% discount on your interest rate. Private loan refinancing could also help you save money if you have good credit and can qualify for a lower interest rate. Additionally, changing your repayment plan to a longer term or an income-driven plan can lower your monthly payments.

There’s another way to look at loan affordability: long-term savings. For example, all the interest your loan accrued while you were in school will be added to the principal once your grace period expires, meaning you’ll have to pay interest on interest. You can avoid this by paying off the interest before your first loan payment comes due. You can also pay more than your minimum payment each month, which can help you pay off your loans early.

Student loans can be complicated, so reach out to your student loan servicer if you have questions. Conversely, if you’re having issues with your student loan servicer, you can file a complaint with the Consumer Financial Protection Bureau.

Credit.com can offer help with your student loans, too. If you have questions about them or other money stuff, leave your questions in the comments. 

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7 Effective Ways to Lower Your Student Loan Payments

Here are seven ways you can pay less on your student loans each month.

Nobody takes out student loans expecting to have trouble repaying them. But once the realities of post-college life set in, many borrowers do find that keeping up on payments is a struggle.

In fact, more Americans are burdened by student loan debt than ever, with a delinquency rate of 11.2%. And that doesn’t include many more who are barely keeping up.

Student loan payments can become unmanageable for a number of reasons: a job loss, pay cut, unexpected expense or simply too much student loan debt to begin with. If you’re struggling to make your payments, know that missing them can lead to disastrous consequences for your finances. (You can see how your student loans are affecting your credit by viewing two of your free credit scores on Credit.com.)

Fortunately, there are several ways to get your payments lowered to a more manageable amount. Here are seven ways you can pay less on your student loans each month.

1. Income-Driven Repayment Plans

For federal student loans, income-driven repayment (IDR) plans can be a smart way to manage student loans. There are currently four IDR plans available for federal student loans:

  • Income-Based Repayment (IBR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)
  • Income-Contingent Repayment (ICR)

Borrowers who enroll in income-driven repayment have their student loan payments lowered to a percentage of their income — 10 to 20%, depending on the plan. Payments can even be as low as $0 under IDR.

Some income-driven repayment plans also take local living costs into consideration when calculating the lower payment. This gives extra relief to payers in pricey cities.

Income-driven plans also offer student loan forgiveness on any remaining balance after 20 to 25 years of loan payments.

To enroll in an income-driven repayment plan, contact your federal student loan servicer. They can discuss your options with you and give you the correct forms to apply for IDR.

2. Student Loan Refinancing

If you have private student loans, one of the only ways to lower payments is to refinance.

By refinancing, you replace your old student loan(s) with a new one through a private student loan refinancing lender. This allows you to lower your monthly payments by getting a lower interest rate, extending the repayment period, or both.

For borrowers who have older federal loans with high interest rates (such as Grad or Parent PLUS loans), it can be worth it to refinance to lower interest rates. Keep in mind you will lose federal benefits, like access to IDR, if you refinance with a private lender. Extending the repayment period can also result in lower monthly payments, but might end up costing more in interest over time.

If you’re not sure if student loan refinancing could benefit you, shop around and get some rate estimates from private student loan companies. Most will perform a soft credit check to pre-qualify you, which won’t affect your credit. (You can learn more about soft credit checks here.)

3. Student Loan Repayment Assistance Programs

Another option to manage student loan payments is to get help through a student loan repayment assistance program (LRAP). This is free help with your student loans. Many states, government agencies, nonprofits and other organizations offer student loan assistance, usually as a way to attract qualified employees.

This student loan repayment assistance tool can help you filter LRAPs by your occupation, state and type of assistance. It’s worth checking to see if you can get free help with your student loans.

4. Deferment or Forbearance

If you need a break from your student loan payments altogether, deferment and forbearance can help by pausing payments.

Deferment can be a good option for federal student loans. It can be granted for disability, unemployment, financial hardship, a return to college or military service. Subsidized student loans won’t accrue interest while in deferment.

Forbearance can also be granted to pause student loan payments. However, all student loans will continue to accrue interest while in forbearance.

With either option, make sure you understand how your loans will accrue interest. If necessary, consider making interest-only payments so your balance doesn’t grow to be bigger than when you started.

5. Graduated Repayment Plan

A graduated repayment plan can help set payments low to start with, then increase every two years (hopefully as your income also rises) over 10 years.

This can be a good fit if you can’t afford full student loan payments now — but you expect to be able to afford to pay more later. If you want to stick to paying student loans off in 10 years, a graduated repayment plan can help you do it.

6. Extended Repayment Plan

The standard student loan repayment schedule is 10 years. But if you stretch your student loan repayment out over more time, this will lower the amount you pay each month.

The extended repayment plan can help you do this by extending repayment to up to 25 years, with either fixed or graduated payments. You’ll need to have more than $30,000 in student loans to get on the extended repayment plan.

This can be a good option if you want to extend your repayment schedule to between 10 to 20 years. However, if you expect to be repaying student loans for 20 or more years, the forgiveness that comes with IDR plans could make those a better option. Again, extending the repayment period can also cost you more in interest over time, so consider this option carefully.

7. Consolidate Federal Student Loans

Federal student loan consolidation combines federal student loans into a single Direct Consolidation Loan. The new interest rate is a weighted average of the previous rates on your consolidated loans.

Consolidating also gives you the option to choose a repayment period of at least 10 years and up to 30 years, which can greatly lower your monthly payments. Some other repayment plans might also require you to consolidate federal student loans to make them eligible for participation.

Keep in mind that unlike refinancing, federal consolidation does not result in a lower interest rate or savings of any kind. It can, however, simplify the repayment process and help open up monthly cash flow with lower payments.

Getting Student Loans Under Control

There are several ways to manage both private and federal student loans. With these options to lower student loan payments, there’s no reason to keep struggling every month.

Remember, you owe it to yourself and your financial health to investigate your student debt repayment choices and move forward with the right one.

Image: Jacob Ammentorp Lund

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Most Borrowers Don’t Think Trump Will Be So Bad for Their Student Loans

Many borrowers actually like an idea about student loan repayment Trump mentioned in a speech during his campaign.

Nearly 40% of student loan borrowers are concerned that Donald Trump’s administration will negatively impact their student loans, according to a new survey from Student Loan Hero. As the country moves into a new era of governance, some graduates are concerned that an already-difficult student debt situation will get worse.

In fact, more than one-fourth (26.6%) of survey respondents admitted they believe a Trump administration will have a “very negative” effect on their student loans. On the other hand, about 40% said they think Trump will have neither a positive nor a negative effect on their student loans, and the remaining respondents (about 20%) said they think he will have a somewhat or very positive effect on their student loans.

These figures come from a poll conducted by Google Consumer Surveys on behalf of Student Loan Hero from Jan. 6 to 9, and the results are based on a nationally representative sample of 1,001 adults with student loans living in the United States.

In the last few years, there’s been quite a lot said about the growing student loan crisis. But what can be done? Student loan borrowers have some idea of policy changes they’d like to see implemented during the Trump administration.

Borrowers Want More Student Loan Forgiveness Options

When asked which student loan changes they would like to see implemented under Trump’s administration, nearly half (44.3%) of respondents chose “federal loan forgiveness after 15 years.” In a speech during his campaign, Trump mentioned something along those lines, proposing a repayment plan in which borrowers pay 12.5% of their income for 15 years, after which any remaining balance would be forgiven. (Whether or not that’s a viable proposal is another matter.)

Currently, student loan borrowers can have their loans forgiven after 20 to 25 years of payments on a federal income-driven repayment plan. There is also a program for federal student loan forgiveness after 10 years in a qualifying public service job (only payments made after Oct. 1, 2007 count). Additionally, borrowers in certain industries can qualify for partial loan forgiveness. However, not everyone qualifies for these forgiveness programs; of those who do, not all will actually have any debt left over by the time the repayment term is up.

It’s not surprising many student loan borrowers expressed interest in a federal loan forgiveness program that discharges student debt after 15 years. According to the survey, 25% of respondents have either stopped making student loan payments or have lowered the amount they put toward repayment in the hope that the government will forgive student loan debt in the future.

Borrowers Also Want Refinancing Options

Student loan borrowers aren’t just asking for forgiveness. Close to one-third of respondents (31.4%) would like to see a program to refinance federal student loans implemented during a Trump administration.

Currently, it’s only possible to refinance through private lenders — the federal government doesn’t offer a refinancing option. The problem is that refinancing federal loans with a private lender means losing access to federal protections such as income-based repayment, deferment, forbearance and some forgiveness programs. Not to mention, borrowers are subject to credit checks and other underwriting criteria that’s at the discretion of each individual lender.

A federal refinancing program could help more borrowers gain access to refinancing options, retain their federal benefits and allow them reduce their interest charges.

How Much Debt Do Student Loan Borrowers Have?

Addressing student loan debt is likely to be on the radar for the incoming administration, especially with nearly $1.4 trillion in student loan debt outstanding.

According to the survey, more than one-third (36.4%) of student loan borrowers have more than $30,000 in debt. Nearly one-fifth (19%) have more than $50,000 in student loan debt. Interestingly, 7.5% of the survey’s respondents aren’t even aware of how much debt they have.

It’s yet to be seen how Trump or Betsy DeVos, his nominee for Secretary of Education, will handle what many consider to be a crisis, but the consensus seems to be that something needs to be done. In response to a request for elaboration on Trump’s student loan repayment proposal, a spokeswoman from his transition team said, “If confirmed, the Secretary designate looks forward to working with the President-elect, the Congress and other stakeholders to address the issues of student debt and repayment.”

No matter who is president, student loan debt can seriously impact your financial situation, including your credit score. (You can see just how much by reviewing the two free credit scores you can get through Credit.com, which are updated every 14 days.) Knowing your options when it comes to student loan repayment and refinancing will be crucial over the next four years and beyond.

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Why All Government Student Loans Are Not Created Equal

government-student-loans

The timing of an article in The New York Times couldn’t have been more ironic.

There we were, the day before we celebrate America’s Declaration of Independence, and the Times published an exposé on the hardball tactics that the State of New Jersey allegedly takes against student-loan borrowers who are unable to continue making their payments.

It seems that for those who fund their college education with state-sponsored money — which all 50 states and the District of Columbia offer — the word independence is actually two words: in and dependence.

How Student Loan Management Can Differ

I say that because, generally speaking, the principal difference between the loan programs run by the individual states and those run by the federal government is the government’s willingness to work with financially distressed borrowers so they can remain independent.

Something else that distinguishes federally backed higher education loans from those originated by all others — including the states and private-sector lenders — is the outsize influence the government wields on distressed-loan restructuring without regard for the ultimate disposition of the underlying contract.

In other words, even if a government-guaranteed student loan is sold to another entity — public or private, as has been the case with the discontinued Federal Family Education Loan (FFEL) program — the feds reserve the right to mandate a change in the contract’s repayment schedule, even though such a move would likely to have a deleterious aftermarket effect on noteholder rates of return (for example, when the repayment term is extended or a portion of the principal is forgiven).

This helps to explain why there has been so much foot-dragging on the part of loan administration companies that are subcontracted by noteholders to service FFEL contracts that have subsequently been securitized.

And then there is the matter of what constitutes a government loan.

Some time ago, a recent state-university graduate contacted me for advice on restructuring his education-related debts. He was the first in his family to go to college and, given his and his mom’s limited financial means, he funded his education by taking on a fair amount of debt — nearly three times his current annual salary.

We talked about the Department of Education’s various income-based repayment plans, and, armed with that knowledge, he contacted his loan administrator. Several days later, he wrote again to say that his debts were not eligible for relief. “How can that be?” I asked. “You told me these were government loans and the monthly payments consume roughly half your take-home pay. Clearly, you should qualify for IBR.”

As it turned out, the “government” loans he believed he’d taken out were from his state (he insists that his university’s financial aid office referred to these loans as “governmental”). A bit more digging on my part also revealed that program was, in effect, a public-private venture. Similar to the manner in which the now-discontinued FFEL program was structured, his state guaranteed against default loans that were originated, funded and later securitized by private-sector lenders. But unlike the federal government, his state seemed unwilling or unable at that point to mandate distressed-debt restructures after the fact.

Consequently, my young friend ended up like too many of his peers: living in his mother’s basement.

There are those who would say, “Yet another reason for the government to get the hell out of the education-lending business!” Certainly, the manner in which public-backed student loans are administered leaves much to be desired.

But that shortfall, as significant as it is, doesn’t outweigh the two key benefits of the Federal Direct loan program and its predecessor: lower interest rates and a panoply of relief options for when a borrower’s financial circumstances cause him to become unable to meet his payment obligations.

In fact, I would take this a step further by advocating for the federal program to accept for restructuring all types of higher-education loans, without regard for origination channel (state, private and peer-to-peer alike) or repayment status.

Think about it. Even if the base rate that the Federal Direct loan program currently charges is increased to compensate taxpayers for the added risk of guaranteeing these nongovernment loans against default, it would still yield a better social and economic outcome for the country, not least because most financially distressed borrowers are sincere in their desire to repay their debts.

The concept of independence is, after all, meaningless if the means for attaining it are nonexistent.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More on Student Loans:

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6 Simple Steps to Avoid Student Loan Headaches

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May is the month of Pomp and Circumstance. Of graduation parties, caps thrown in the air and dreams thrown even higher. It’s also the month where many seeds of financial destruction are sown.

Student loan borrowers who are graduating have six months to figure out how to start paying back their loans — or how to avoid paying back their loans. Decisions made during this time are critical, and can really dictate many other choices during the young adult years: when to buy a car, a home, or even start a family. That’s why it’s important to think about these things even before your cap hits the ground on graduation night.

First, a quick refresher on the problem. The national student loan default rate is 11.8% for the three most recent years of graduates. But that understates the problem. Borrowers can be delinquent (late on payments) without being in default — and the student loan delinquency rate is 17%, according to the Federal Reserve Bank of St. Louis. But even THAT number understates the problem dramatically.

About 45% of recent graduates aren’t repaying their loans at all — they re-enrolled in school, and are in deferment, or they are in forbearance, for example. So, among borrowers who are actually supposed to be paying their loans, the delinquency rate is actually 27.3%. One in four have fallen behind, and at the very least, are seeing their credit scores plummet.

Don’t miss the significance of that last number. Much is made of borrowers who can’t repay their loans at all, but for every borrower who goes into default, two more are merely delinquent. Maybe you are lucky enough to not fear default…but your odds of becoming at least delinquent are shockingly high.

So we asked student loan expert Mark Kantrowitz to help us develop a checklist for soon-to-be former students that can help them avoid adding to those disastrous numbers.

1. Don’t Miss Payment No. 1

There are plenty of reasons for high late payment rates, but this one is surprisingly simple to avoid.

“About a quarter of borrowers who miss a payment are late with the very first payment,” Kantrowitz said. “Most student loans come with a six-month grace period after the student graduates before repayment begins. That’s a lot of time during which a college graduate can forget about their student loans.”

It’s easy to become distracted by finding a job, an apartment, buying a car, and suddenly, the six months is gone. Making matters worse, address changes mean loan servicer notices could get lost in the mail. Remember, “I never got a bill,” is no excuse. Proactively engage with your lender to make sure that first payment is on time.

2. Automate Your Payments

One great way to avoid problem No. 1 is to sign up for automated payments with your lender. Many servicers also give borrowers a small interest rate break for doing so. Set automated payments up early, and you’ll have less to worry about come the Fall. Sure, it can feel strange to give a lender direct access to your checking account, but unless you are a bill-paying ninja, it’s probably worth the peace of mind.

3. Select Conservative Payment Terms

Many borrowers will find themselves with options that seem to ease the immediate pain of repayment — by lowering monthly payments. These can sound seductive, but they trade a little pain today for a lot of pain tomorrow. For example, borrowers may have the option to spread payments out over 10, 20 or 30 years. Those who choose 30-year payments will cut their monthly payments nearly by half, but will pay more than triple the interest. Let’s examine a $35,000 federal student loan balance with a 6.8% interest rate. Using 10-year terms, borrowers would pay $402 per month, for a total of $48,333 over 10 years. Borrowers who pick a 30-year term would pay $228 per month, but a total of $82,146, or $47,145 in interest compared to $13,333!

“Students often choose the repayment plan with the lowest monthly payment, thinking that it ‘saves’ them money,” Kantrowitz said. “Instead, they should choose the repayment plan with the highest monthly payment they can afford.”

If the 10-month term creates monthly payments that are just too steep, borrowers can pick 20-year terms initially to ease the pain a bit…but make a promise to make extra payments as their income grows.

4. Don’t Choose Income-Based Repayment Because it ‘Feels Cheaper’

With income-based repayment, monthly loan terms are set based on a borrower’s income. This can be a great alternative to delinquency or default, but it should be a last resort, not a first choice. See the math above. Yes, income-based plans hold out the promise of loan forgiveness … but only after decades of payments.

“Most borrowers should stick with a standard 10-year repayment plan. Anything longer than that, and they will still be repaying their own student loans when their children enroll in college,” Kantrowitz said.

5. Don’t ‘Snowball’ by Consolidating

Many borrowers graduate with multiple student loans, and the attraction of pooling them together to make a single payment is understandable, but usually misguided. Consolidation only makes sense if it lowers the total cost of borrowing (by lowering the interest rate), and that’s often hard to accomplish. Simply merging federal loans gives borrowers a rate that averages across the loans. The one method that does work is waiting a few years so the borrower’s credit score improves, enabling refinancing the debt with a better interest rate.

Another mistake borrowers make when they consolidate is that they rob themselves of the chance to apply extra payments to the loan with the highest rate first, which is always the best method. Some borrowers are attracted to the so-called “snowball” method, which suggests paying down the loan with the lowest balance to score a quick win. That might make a borrower feel good, but financially, it’s not the best way to save money.

6. Don’t Ignore ‘Interest Capitalization’

Those are big words, but here’s a simple rule of thumb: You pay for both borrowing money and borrowing time. Adding time to repayment is basically the same thing as borrowing more money, so if you obtain a loan deferment or forbearance, you might avoid payments for a while, but you will not avoid added interest. In rare cases (with subsidized loans in deferment), the federal government will pay the extra interest for you. But you can’t avoid the added cost of stretching out loan terms. In most cases, added interest will be “capitalized,” meaning it increases the outstanding total balance of the loan. Again, postponing pain today merely increases pain tomorrow.

Remember, defaulting on a loan seriously damages your credit score, and because student loans are rarely discharged in bankruptcy, the debt can beat down on you for decades. (You can see how your student loans are currently impacting your credit scores for free on Credit.com.)

There are some options for people who are behind on payments to get back on track, though, even if forgiveness isn’t an option. To get out of default, you can combine eligible loans with a federal Direct Consolidation Loan, or you can go through the government’s default rehabilitation program. If you make nine consecutive on-time payments (the payments can be extremely low), your account goes back into good standing, and the default is removed from your credit report.

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Image: Michael Krinke

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