Business news

Graduation season is here. So student loan bills are close behind.

Students received an early reminder of their looming debt a few weeks ago, when a new law overhauled the federal lending program. Under the rejiggered system, the Education Department will provide all federal loans through college financial aid offices starting July 1.

Previously, families were able to obtain government-backed loans from private lenders through the Federal Family Education Loan program. Students who already have FFEL loans won’t be required to make any changes. But there are scenarios when it makes sense to switch over to the direct loan program.

There are no benefits for those who already took out loans. Still, there are some payment options new graduates will want to keep in mind.

PAYMENT PLANS

Most federal loans come with a six-month grace period. But interest continues accruing it that time, so the sooner payment starts, the better.

The exception is with subsidized federal loans, in which the government waives interest charges until the loan comes due.

Those pursuing fields that don’t pay a lot will want to look into a program called income-based repayment, or IBR. Essentially, it caps payments at 15 percent above any earnings beyond $16,000 or so. Any debt remaining after 25 years is forgiven.

Eligibility depends on a formula that weighs education loan debt against income; a calculator at www.ibrinfo.org can help determine whether borrowers qualify no fax pay day loan.

CONSOLIDATION

A consolidation loan is used to combine several federal loans, so borrowers only have a single monthly bill.

Private lenders are no longer offering them, but FFEL borrowers can still get consolidation loans through the direct loan program.

A new interest rate will be based on the weighted average of the loans, so interest charges will be about the same under a consolidation. But that average will be rounded up to the nearest 1/8 percent, so there’s a cost for the convenience of a single bill.

You can typically only consolidate loans after you graduate. As part of its overhaul, however, the government is letting students in school consolidate loans between July 1 and June 30 of next year.

This might be tempting if you already have FFEL loans and will now get direct loans. But it’s probably best to wait until you graduate, because a consolidation technically puts you into repayment, said Mark Kantrowitz, publisher of the FinAid.org.

For the same reason, watch your timing for getting a consolidation loan. If you want to take advantage of the six-month grace period, hold off for a few months.

One drawback about consolidation loans is that they often extend repayment, meaning the overall cost of the loan will be higher.

Source