One reason the housing market has not expanded enough to support robust
economic growth is that young adults are not setting up their own households at
anywhere near the historical norm.
Whatever the numbers, they add up to a normalization of tardiness that can
damage the credit scores of young adults. And one big reason it's happening is the fact
that many among the indebted simply aren't sure how many loans they have, how and
when to pay them back correctly and how to find and use programs for people who
can't afford the full payments.
Let us pause for a moment to state the plain fact that the entire college financing
system is a national disgrace. College costs are high, universities don't counsel
undergraduates well enough, families get in over their heads, there are too many types
of loans, the repayment options are dizzying, and lenders and the companies that
collect the payments are sometimes bad actors.
But this column exists for the far-from-ideal world we have to live in today, one
where if the trend lines that the New York Fed has outlined continue, half of all
25-year-olds who have credit reports will have student loan debt in a couple of years. A
new student loan calculator was recently introduced. It can tell you what the average
student loan debt is at schools you're considering, what sort of salary might make the
debt affordable and how different repayment options could significantly affect what you
What follows is a basic guide for rookie student-loan debtors that can keep
people out of some of the most common types of trouble.
WHAT YOU OWE The idea that any grown-up might not know how many
student loans they have probably seems outlandish. But many students have a few
different types of loans and get new ones each year during the rush to get the bursar's
approval to register for classes.
Universities don't always make loans easily comprehensible either. Lauren
Asher, president of the Institute for College Access and Success, remembers getting a
financial aid letter in graduate school with an acronym that was so confusing that she
couldn't tell whether it referred to a loan or a grant.
So repayment needs to begin with an accounting of every individual loan. Start
with whatever is in your files. Then check to see whether you're aware of all of your
federal student loans. Borrowers can use the National Student Loan Data System
website to get the details. (There are links to all of the resources I mention in the online
version of this column, plus additional links to lengthy explanations of industry terms
One critical piece of information you need: Who is the so-called servicer that will
collect your payments each month on behalf of the federal government? You may have
more than one, and you'll want to know how to contact them to ask any questions you
may have about your payments.
In her book “CliffsNotes Graduation Debt,” Reyna Gobel suggests starting a
simple spreadsheet to track every loan. For people who need to track down all of their
private loans from nongovernment lenders, she suggests they should get copies from
annualcreditreport.com of all three of their credit reports. These loans should show up
on at least one report, though not all loans may be on all of the reports.
Ms. Asher's organization publishes its own omnibus repayment guide on its site,
as does Mr. Kantrowitz on his site finaid.org. The Department of Education's repayment
information is worth a careful read too.
WHEN AND TO WHOM The first payments on your loans may be due at
different times. Some federal loans give you a six-month grace period after you
graduate while others give you nine months. With private loans, it varies.
Assume here (and really, everywhere throughout this process) that servicers will
fail to find you and give you clear repayment instructions before the first payment is
due. If you've moved or changed your email address since you took out your first loan
and haven't told the servicers about it, be especially vigilant. Also, have user names
and passwords at the ready so you can check accounts online and call if you need
When you do pay, you may be able to send in one check even if you have
multiple loans from multiple years with one servicer. Find out, as it can save you some
hassle. Then check to make sure the servicer is crediting the payment properly to every
Having the servicer pull the monthly payment from your checking account
automatically can spare you some effort and risk, but that works only for people with
regular sources of income who won't bounce the payments for lack of bank funds.
Again, check for problems. Sometimes the direct debits don't start in the month they're
TAKING LONGER The normal repayment period for federal student loans is 10
years. But depending on the loan and the balance, you may be able to lower your
monthly payments by taking as long as 30 years to pay them off.
There are several ways to do this. One is through something called extended
payment. Loan consolidation, where you combine many loans into a single one, is yet
another possibility. If you want to consolidate all of your loans, make sure you don't
forget one. You can also enroll in a graduated payment program while in consolidation
(and in some other circumstances) that allows you to pay increasing amounts over time.
The big downside to taking more than a decade to pay is that the total interest
costs can be much higher. The Student Loan Borrower Assistance Project of the
National Consumer Law Center has an extensive guide to loan consolidation on its
website that outlines these and other trade-offs.
INCOME-DRIVEN REPAYMENT For people without much income, there are
several government programs that set payments on federal student loans based on
how much money you make. You can see a list of them on the right side of the
Department of Education's main income-based repayment web page. To see what your
payment might be under the plans, visit its repayment estimator page. Your servicer will
determine whether your income is low enough to make you eligible.
The income-driven payments may cause you to spend more on interest over
time than you might have otherwise. Under certain circumstances, the federal
government may eventually forgive the debt after a number of years as well.
Sallie Mae, which said earlier this year that “nearly” 85 percent of its federal and
private loan customers who were supposed to be making monthly payments were in
fact up-to-date, offers one additional tip: If you're confused or having trouble making
payments, talk to your servicer.
Sallie Mae and Navient, a new company that was formerly part of Sallie Mae,
settled charges this week that Sallie Mae had overcharged members of the military.
That embarrassing event aside, however, the company succeeded in getting late
federal loan customers back on track 90 percent of the time, when it could reach them,
said a Navient spokeswoman, Patricia Christel, about Sallie Mae's efforts.
As for those who had defaulted on their loans entirely, which happens after at
least 270 days of no payments, only 10 percent of them ever answered the company's
calls or tried to reach out themselves.