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Understanding student loans

Posted Aug. 11, 2013, at 11:04 a.m.
Last modified Aug. 11, 2013, at 7:52 p.m.

Here’s the bottom line on student loans: The longer it takes to pay the loan back, the more you’ll pay in interest.

It seems logical that students would rush to pay their debt, but many have not. There are 7 million people in default on such loans. That figure is from the Consumer Financial Protection Bureau, or CFPB, which puts the total of public and private student loan debt at nearly $1.2 trillion.

Managing that debt can be challenging. There are options for paying it back, and those are worth a long look.

One new plan called Pay As You Earn requires some documentation to get started. Once you’re approved, you can pay about 10 percent of your income that’s above the poverty line; after 20 years, any amount still owed is forgiven. See the details at CFPB’s website, www.consumerfinance.gov, and search “pay as you earn.”

There are other repayment options that don’t require documentation. Extended repayment allows you to extend your payback period. You may want your payments to increase over time, as your earning power grows, through graduated repayment. You can use both features in what’s called extended graduated repayment. Again, these plans will mean you’ll pay more in interest over the term of the loan.

The rising total college loan debt can be traced largely to the economy. Parents feeling the effects of the recession are less able to help with postsecondary costs, so borrowing increases. One factor that’s sometimes overlooked is gift aid.

Gift aid is a term for scholarships and grants that a school and government give to needy students. It does not include work study earnings and loans. Exploring ways to get gift aid can help trim that debt load from the outset.

When considering ways to pay off debt, look critically at offers of “debt relief.” Some companies demand big initial fees plus monthly costs to find government programs that you can use for free. The publication Bottom Line/Personal suggests readers visit www.StudentAid.ed.gov to learn about options for debt relief.

Rising student debt loads are having real effects on the economy. Some pundits argue that the focus on repaying college loans is stifling investment in business and discouraging young adults from buying a first home. The American Medical Association says many new doctors are choosing lucrative specialties, rather than family practice, in order to get a handle on their often massive debts.

The College Board has information on college costs at http://bigfuture.collegeboard.org. The Finance Authority of Maine has information about filing your Free Application for Federal Student Aid and more at www.famemaine.com.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer 04412, visit http://necontact.wordpress.com or email contacexdir@live.com.

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