Published February 17, 1997	Does this sound familiar? You graduated from college in May. Maybe you started a job right away. Maybe you traveled in Europe all summer and began a job in September. Or maybe you have had no luck finding a job at all. You vaguely remember that you signed some papers during college that your parents and/or the school told you to sign in order to register for classes. Maybe you understood that these were student loans, but it is possible you did not. Now, however, it is almost six months after graduation and you have no doubt that they were student loans — because you are receiving notices from student loan companies telling you that the first payments on these loans are due in December or January. This might not be a problem if it were only one loan. But you have more than one loan. And, the notices are coming from different companies with strange names such as Sallie Mae, UNIPAC, EduServ, and the like. You review your budget and realize that, even with a job, you cannot make the payments. What do you do?
You could try the ostrich approach — bury your head in the sand and hope your loans will go away. They will not.	OPTIONS One option is the ostrich approach: Bury your head in the sand and hope your loans will go away. They will not. The only reason the bank or school gave you a loan in the first place was because the federal government guaranteed the loan with federal money — and Uncle Sam wants his money back. Fortunately, there is a realistic option available: consolidation. Consolidation is a student loan program that allows a borrower to lump all of his or her federal student loans into one, new loan. Consolidation offers the borrower the simplicity of having only one monthly payment, while extending the term of the loan so the borrower can afford the payments and protect his or her credit rating. However, be aware that by choosing to extend the term, you will most likely be paying more money in the long run for your loans. PLANS Level Plan Monthly payments are the same over the course of a term. The term is based upon the amount of money you owe. A term that was originally 10 years can be extended to 20 years or more in some cases. Graduated Plan Begin with smaller payments which gradually increase over the course of the term of the loan. These plans tend to start with interest-only payments for a period of time, and then increase to principal and interest payments. In most cases, these plans will cost you more money than a level plan over the course of the same term. Income Sensitive or Income Contingent Payments under these plans are based on a percentage of your income and are usually adjusted annually in accordance with your ability to pay. The term under these plans can be extended for a very long period of time. Some programs offer forgiveness of the loan if you make all your payments and still have a balance after a certain number of years. These plans are the most expensive as the required monthly payment can be less than the interest that is accruing each month.
WEB RESOURCES: The Ambitious Student's Guide to Financial Aid A very thorough primer on borrowing and repayment FinAid An exhaustive list of aid sources and information fastWEB Financial Aid Search Through the Web — based on your profile FASFA Express Download documents to apply for aid Financial Aid Calculator Computes your expected family contribution	Things to Consider Some of the things to consider when consolidating are the current status of your loans, the new interest rate versus the old rates, the length of term, the total cost over the life of the loan, prepayment penalty, and flexibility to change payment plans once you consolidate. You should ask about each of these issues before consolidating. Remember, the longer you choose to extend the term, the more you will pay ultimately. However, if in a given month you can afford to pay more than the monthly payment, do it (assuming there is no prepayment penalty). You will save a tremendous amount of money in the long run. To get started, call one of the current holders of your loans and ask about their consolidation plan. Under federal law, you must consolidate under a plan offered by one of your loan holders. If none of your loan holders offers a plan, you are free to call any student loan consolidation company, including the U.S. Department of Education Direct Loan Program established during President Clinton's first term in office. You may even consolidate a defaulted loan under certain circumstances. The bottom line is, no matter what your situation, do not take the ostrich approach. A negative reference on your credit report due to failure to pay your student loans will follow you around for a long time. Call your student loan company, get answers to your questions, and make sure you keep your loans in good standing. Stuart Farmelant, owner and founder of Student Aid Advisors, has years of experience representing student loan companies and schools on matters relating to student loans and financial aid. Mr. Farmelant uses this expertise to resolve student loan problems and repair the credit ratings of his clients. SAA can be reached at 1-800-440-9020. © 1997 Stuart Farmelant, all rights reserved.