THE COLOR OF MONEY
Handling the loans that paid for college
By Michelle Singletary | June 5, 2005
Got a degree?
If you do, you probably have student loans -- and a lot of questions about repaying them.
Getting a federally backed student loan takes you into a world with terms such as ''forbearance," ''deferment," and ''graduated repayment."
''The federal student loan program is confusing," write attorneys Robin Leonard and Deanne Loonin, co-authors of ''Take Control of Your Student Loan Debt" (Nolo, $26.95).
Because this is graduation season, there couldn't be a better book to select in June for the Color of Money Book Club than one that addresses some of the major issues people coming out of school must deal with.
''Take Control of Your Student Loan Debt" is an easy-to-understand guide to the complex and often-overwhelming process of the federal student loan program.
Here are some of the major topics Leonard and Loonin cover:
Student loan basics. This is the only section you should definitely read if you have student loans. It covers the different types of loans and the particular features of each. ''Many people don't know much at all about their loans. It's easy to go into denial when a burden feels too great," the authors write. ''And former students often push aside their loan paperwork for so long that when it comes time to face what they owe, they no longer know what kinds of loans they took out, much less how to handle their monthly payments." It's important to understand which loan you have because many of the factors you need to consider, including the various repayment options unique to certain student loans, depend on the type of loan you have taken out.
Who holds your student loans? The loan could be sold two or three times. Leonard and Loonin provide information on how to find out who owns your loan.
Budget basics. ''A realistic budget is an important stepping stone on the way to choosing repayment options, negotiating with stubborn loan holders or collection agencies, making responsible decisions about postponing your loan payments and many other actions you may have to take," the authors say.
Student loan repayment options. Many lenders offer graduated or flexible payment plans geared toward a borrower's income. Under graduated repayment, payments start out low and increase every two to three years. This is a great option for people entering a field with low starting pay but with the potential for that income to rise over time. Leonard and Loonin point out that under the federal direct loan program, your payments can start out as low as half of what they would be under a standard repayment plan. However, your payment can never be less than the monthly interest amount due.
Strategies when you can't pay. In this section Leonard and Loonin provide information on your options. For instance, you may be eligible for ''deferment," which means you still have to pay the loan but you can postpone payments for a while. And the most important feature of this option is that interest on the loan or loans will not accrue during the deferral period. You can ask for a deferment if you become disabled, unemployed, or because of some other economic hardship. When you obtain a ''forbearance," the loan holders give you permission to reduce or stop making payments for a set period of time. Unlike the deferment option, interest continues to accrue. Also, forbearance is easier to get than a deferment because it's not tied to the type of loan you have.
Consequences of defaulting on your student loan and strategies to get out of default. Throughout the 1970s and '80s the percentage of people who defaulted on their student loans grew to more than 22 percent, according to Leonard and Loonin. Legislation enacted to limit how much students could borrow and aggressive collection actions have significantly reduced the default rate to under 7 percent. If you default on your loan, the loan holder or the federal government will be relentless in trying to collect. One of the most successful ways the government has in collecting on defaulted student loans is snatching tax refunds. Leonard and Loonin tell borrowers not to ignore the problem, because the consequences of defaulting can be costly.
Michelle Singletary is a columnist for The Washington Post. 
