An improved economy and lower unemployment should reduce the number of recent college graduates who default on the federal student loans they are supposed to start repaying when their six-month grace periods expire.

Inevitably, though, some will fall behind even though there is no good reason to do so.

Borrowers need to understand that waiting for student loan collectors to pounce just costs more in the long run. Interest and penalties inflate overdue debt, and wage garnishment will take far more of borrowers’ paychecks than federal income-based repayment plans.

The highest default rates tend to be among people who fail to graduate and those who attend for-profit schools. But some borrowers simply lose track of what they owe, and loan servicers may be unable to reach those whose contact information is out of date.

Here then, is a game plan for people grappling with ­student loan repayment for the first time:

1. Find your loans

Most borrowers have multiple loans taken out over time. Borrowers can find their federal loans via the National Student Loan Data System at, or by calling 1-800-4-FED-AID. For private student loans, check

2. Investigate federal ­repayment options

Federal student loans typically have 10-year repayment terms. Paying the loan off faster will save on interest, but could prevent a borrower from achieving more important goals, such as saving for retirement or a down payment for housing.

Those who have trouble making payments on a 10-year term should check out consolidation, which can lower payments by stretching out the loan term to 15, 20 or even 30 years.

There are also income-based repayment plans for low earners. For the lowest earners, PAYE can reduce required payments to zero.

3. Be sure to check out private repayment plans

Private lenders may offer loan modifications, interest rate breaks and forbearance for strapped borrowers.

Sallie Mae, one of the largest lenders, offers an interest-only payment option for the first 12 months, said a spokesman.

Borrowers with good credit (or a co-signer) and sufficient incomes may be able to ­refinance private loans.

4. Consider changing the servicer of your loan

New federal loans are made by the federal government, but the feds designate private companies to take your payments, arrange payment alternatives and handle customer service.

Unfortunately, not all servicers are created equal, and borrower advocates complain that some do a lousy job.

Borrowers cannot change their servicer unless they opt to consolidate all their federal education debt.

To consolidate, they would apply directly to the servicer they want: FedLoan Servicing, Great Lakes, Nelnet, or Sallie Mae.

5. Know where to go for help

Borrowers with federal loans can contact the Federal Student Aid Ombudsman and the Consumer Financial Protection Bureau. The CFPB also takes complaints regarding private lenders.


Liz Weston is a Reuters columnist.