Graduating seniors prepare to pay off student loans
By Ame Phitwong
Walking across the stage and receiving a diploma barely releases many new graduates from the financial struggle they face after graduation. Often students are clueless and have no idea where to begin managing their debt.
"I'm not really nervous because I know I'll get a job," said senior Beth Ann Nyssen, a nursing major. Nyssen said she will be $21,000 in debt, despite receiving scholarships, grants and being a Providence Scholar. Nyssen plans to pay off her loans in two years.
According to Herald Johnson, director of Financial Aid, almost all UP students pay off their federal Stafford loans without defaulting.
"UP has an amazing default rate, it's less than 1 percent," Johnson said. "This means that over 99 percent of students pay off their loans."
According to the Princeton Review, students should save all their loan paperwork, documenting how much they borrowed as well as the legal agreements and terms of being a borrower. These documents include applications, promissory notes, disbursement and disclosure statements and loan transfer notices, which are important for later reference. Princeton Review also says getting organized may mean developing a record-keeping system and sorting documents with file folders and binders.
In addition to paperwork, Princeton Review recommends saving all documented correspondences, including verbal, online and written communication with the lenders and the Office of Financial Aid. When speaking with lenders, always write down the name of the person you are speaking with, the date and time of the conversation, and a summary of what was discussed.
After organizing, Princeton Review recommends exploring different types of repayment options. Each lender has specific repayment options that are molded around how much a student makes. Consolidating loans is also an option. Consolidation is combining loans from different lenders into one lump sum and making one payment instead of multiple payments.
The Citi Student Loan Corporation said students are responsible for making loan payments, even if they do not receive a bill or notice. The minimum balance or more must be paid on time every month because it creates and builds credit history.
If a student is unable to make a payment, he or she is subject to defaulting on a loan.
Default occurs when the loan is not being paid according to the agreement in the terms of the promissory note, the legally binding contract between a lender and borrower. However, Citi said that if students work with their lenders, options are available to temporarily postpone payments.
According to the Princeton Review, students who have yet to graduate can manage money smartly by developing realistic budgets, living as cheaply as possible, paying the full amount on credit card bills and participating in work-study or maintaining some type of part-time employment to help cover expenses. It also advises students to resist the urge to use credit cards or take out loans to purchase things that exceed their budgets.
"Although every situation is different, one common theme I encounter is that students have a lot more debt compared to how much they're going to make," said Anne Seelye, a financial planner and adviser for Waddell & Reed. Seelye has worked with many new graduates to help solve their debt problems and offers no charge for the initial consultation.
Seelye said it's difficult to make a generalization and tell all students to consolidate loans or how to approach their financial situations because each student has different circumstances and needs individualized consultation. One thing she recommends to all college graduates is to get a job before consulting with a financial adviser.
"Arm yourself with the ability to say 'let me think about it' or 'no.' You have to be able to say no sometimes," Seeyle said about interactions with financial advisers.
Seeyle believes parents are great sources for financial advice and students should consult with them. She also said it is important to pay attention to the small print in legal documents before signing documents and for students to educate themselves about loans.
According to Seeyle, one way to calculate how long it will take to pay off a loan is the "Rule of 72." To calculate the time, divide 72 by the interest rate. For example, if $10,000 is borrowed with an interest rate of 25 percent, it will take three years for the amount to double.
"Interest is a two-edged sword; it can work either for you or against you," she said.
Disclaimer: The opinions expressed are those of Anne Seelye and are meant to be general in nature and should not be construed as investment, financial or legal advice related to your personal situation. Please consult your financial advisor prior to making financial decisions.
