The estimated cost of tuition for the University of Wisconsin-Milwaukee for one year is $8,284. Throw in the cost of supplies like textbooks and you are easily at $9,000, and that doesn’t include you're living expenses. It is quite possible that an undergraduate degree would cost at least $40,000 at a state college. What happens when you have to pay back those student loans?
Because of a slow economy the student loan repayment market has changed vastly in the last five years. When I graduated with a bachelor’s degree in 2007 you could still consolidate your loans through a private bank or financer for a low locked in rate of about 6%. Lenders like Sallie Mae, US Bank, and other large companies would consolidate your loan for you and set you up on a payment plan that you would pay until you had a zero balance. I know some people that have been making minimum payments and paying off their student loans for 30+ years.
Let’s fast forward to 2011. Student loans have become an unprofitable market for private lenders because of the lower interest rates and a large amount of people whose loans go into default. There are still some possibilities for private lenders, but in most situations it would be overly expensive and not worth your time. There are basically two options: simply pay them off or consolidate them through a federal government program.
Most students accrue multiple Stafford loans or “plus” loans for each semester they attend school. If you do not consolidate you will have to make minimum payments on each of these individual loans. After I graduated with a master’s degree I had eight individual loans totaling…$88,000 (deep breath). Great Lakes is the company in our area who handles tracking those student loans and receiving payments for them. They will send you statements the entire time you’re in college to let you know the total you owe. There are different payment options such as 10 year or 25 years repayment plans.
The other option is to consolidate loans through the federal government's Direct Consolidation Loans. Be forewarned that only certain types of loans like Stafford loans can be consolidated through this program. The benefits of this consolidation are the ability to make income contingent payments and sign up for other loan forgiveness options and only making one minimum payment. For example if you are a teacher in a designated high risk school, every year you teach there a certain percentage of loans is forgiven. If you work full time in a hospital, registered nonprofit, as a public service employee, or a part-time community college professor you can enroll in the Public Service Forgiveness Program. If you make 120 (10 years) worth of payments while employed full time at one of these positions after the 120th payment they will forgive the remainder of your loans. This legislation was enacted in 2007, so I am not certain if this can be applied retroactively. The other helpful legislation is no matter what payment plan you have through consolidation after 25 years of payments the rest of your loans are forgiven.
For example if a full-time single public service employee whose income is estimated at $25,000 with $88,000 in debt could sign up for an income contingent payment options. This would be an estimated monthly payment of $247 for the next 10 years, which translates into a total repayment of about $30,000. If the person was not a public service employee they could still enroll in income contingent payments for the next 25 years which would be a total repayment of about $75,000. No matter what be aware of your options. When you do entrance and exit loan counseling for school pay attention to the small print, because it could cost you if you don’t.
-Never borrow more then you need.
-Consult your financial aid department every year.
-Read the fine print involved in entrance and exit counseling for student loans, twice!
-Know your options and prepare yourself, imagine how you will pay off your loans before you graduate. Do not procrastinate.
-Look at every statement Great Lakes sends you.
-Make small payments while you are in school, even $30 per month will save you money in the long run. With an annual interest of 8.7%, that $30 worth of your loan compounds an additional $2.61 in just one year.