October 27, 2013

As loan repayment nears, students warned to guard against default

The first student loan payment date is quickly approaching for students who graduated from college in May.

This can be a worrisome time for new college graduates, especially after the U.S. Department of Education recently announced an increase in federal student loan cohort default rates. The national two-year cohort default rate rose from 9.1 percent to 10 percent for fiscal year 2011 — the most recent available. Iowa's two-year rate is even higher, 12.3 percent.

Federal student loans are considered to be in default after 270 days of failure to make payments; private loans may go into default sooner.

There are several steps borrowers can take to ensure that they avoid default and stay on top of their student loan debt.

One of the biggest mistakes graduates make is not staying in contact with their loan providers, who need current contact information in order to send borrowers crucial deadlines and information.

“Borrowers should make contact with their loan servicers prior to their loans entering repayment,” said Karen Misjak, executive director of the Iowa College Student Aid Commission. “That way they will have enough time to discuss the repayment plans and forgiveness programs available and to select the best option for their budgets.”

Several options that are particularly helpful for new graduates just starting out are the pay-as-you-go and income-based repayment plans, which set monthly payment amounts as a percentage of the borrower's income. There are also other payment plans that allow graduates to make smaller payments during the beginning years of the repayment process or that extend the length of their repayment terms. Debt can also be eliminated through federal and state student loan forgiveness programs in fields such as public service, teaching, nursing and some others.

Borrowers also need to be strategic when making their loan payments. By making more than the minimum payment each month, the principal amount of the loan will decrease more quickly. This reduces the amount of interest that accrues, saving the borrower money.

“The key to keeping student loan borrowers out of default is to make sure they stay informed about the terms of their loan and the different repayment options that are in place to assist them,” Misjak said. “Borrowers who are having trouble making payments should contact their lender or servicer immediately to discuss their options instead of waiting until they've already missed a payment. Defaulting on student loans is a serious financial mistake.”

The above statements do not represent those of Weston Legal or Michael Weston and they have not been reviewed for accuracy. The statements have been published by a third party and are being linked to by our website only because they contain information relating to debt. Nothing in this article should be construed as legal advice given by Weston Legal or Michael Weston. To view the source of the article, please following the link to the website that published the article. Articles written by Michael W. Weston can be viewed here: To report any problem with this article please email



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