Planning ahead can ease dreaded student loan repayment process

There are many ways to pay for college: scholarships, trust funds, private loans, medical testing, etc.

But the most popular, by far, is federal student loans.

Paying back student loans can be an expensive endeavor after graduation.

The faster the loan is paid off, the better, because than the borrower will pay less in interest.

There is plenty of advice on how to pay off student loans for graduates to choose from.

Many students go through college neglecting the fact that they are accepting loans from the government that will need to be paid back shortly after graduation.

Some student loan financing entities allow a six-month grace period from when students graduate to when they begin to pay off their loan, but not all.

This can help a fresh graduate to get their finances in order and have a chance to figure out just how they will pay off their loan.

For those receiving federal loans, Paul Dockry, senior vice president of Wells Fargo Education Financial Services, had some advice.

He said there are four repayment options.

"Students with a Federal Stafford Loans and Federal PLUS Loans can opt for a 10-year payment plan with a minimal $50-a-month repayment option," he said.

This can help keep a graduate on-track with manageable payments and a clear end-in-sight.

This is a viable option for those with a moderate level of student loans to repay.

The second option, Dockry said, is "alternative repayment options that include extended repayment if the total is exceeding $35,000, and repay up to 25 years versus the 10-year option."

The third option is a graduated repayment plan that is 10 years long.

Instead of making a flat, fixed-payment amount, students can pay a small amount, as little as interest only, for a certain number of months and can continue to increase payments over the life of the loan. 

The fourth option is income sensitive.

Similar to income-based repayment, it's based on the income of the borrower and the payment is configured by how much the former student makes.

The payment amount changes year to year.

The borrower will have to reapply every year, he said.

A more detailed version of the four options' stipulations can be viewed at wellsfargo.com/student/repay/plans.

More and more students are discovering private loans.

It is necessary to weigh all options when considering private loans, as the rules for federal loans do not apply.

Private loan consolidation is an option for those with more then one private loan, he said.

Another way to circumvent mounds of debt is to address the compiling interest now instead of years down the road.

"One way to start early to pay-off student loans is to avoid paying interest on interest," Patricia Christel, spokeswoman for lender Sallie Mae, wrote in an e-mail.

"Simply by paying the interest (or at least part of it) on your student loans each month while in school, you can avoid or reduce capitalized interest so you prevent surprises at graduation time when your loan balance grew higher than you anticipated."

Sallie Mae introduced a new student loan where students are required to make interest payments while in school.

Christel said this can save 30 to 50 percent in interest over the life of the loan and shorten repayment by five to eight years, compared to loans where interest is deferred.

She recommended students sign up for electronic billing and arrange automatic electronic payments.

"In some cases, this will give you a reduction in your interest rate and it will save money on late fees and stamps," Christel said.

Whether it be paying-off interest or other financial planning, there is one thing that both Wells Fargo and Sallie Mae can concur: "Once out of school, select the payment plan that meets your needs," Christel said.

WESTONPOOR@DAILYNEBRASKAN.COM