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simply lose track of what they owe, and loan servicers may be unable to reach those whose contact information is out of date.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 www.nslds.ed.gov, or by calling 1-800-4-FED-AID. For private student loans, check www.annualcreditreport.com.
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.
