Better College Loan Options

Millions of students graduating from college this year will have a shadow hanging over their heads. An estimated two-thirds are burdened with student loans-$25,000 on average.

And graduate school can push debt much higher. Consumer Reports has important advice on the various loan options.

Galen Royce Nagel will graduate from medical school this year-fulfilling her longtime dream of becoming a doctor. But that dream comes at a very heavy cost.

Nagel says, "I am officially $300,000 in debt."

Galen calculates she'll have to pay $2,000 a month for the next 30 years. With interest, she'll end up paying $600,000 dollars for her education.

Greg Daugherty of Consumer Report says, "Student loans are different from other types of loans-they can't be erased if you declare bankruptcy. And lenders can take money from your wages, tax refunds, and even Social Security if you don't pay up."

Consumer Reports advises taking out Federal loans such as Perkins or Stafford with fixed rates, rather than private loans from banks with variable rates. And with Federal Loans you get more flexible repayment options.

Daugherty says, "Generally, with a Federal loan you don't have to start repaying until six months after you graduate or if you drop below half-time at school. At that time you may qualify for any number of payment plans."

For instance, Federal loans may offer:

-a standard repayment of at least $50 a month for 10 years
-extended repayment that gives you up to 25 years to repay
-graduated payments, which start small and get bigger when you're likely earning more
-there are also income-based payments, which may forgive some of the loan after 25 years.

Daugherty says, "You'll save money and get out of debt the quickest if you make the largest payments you can each month, and apply any extra to the principal."

Galen hopes her doctor's salary and a frugal lifestyle will get her out from under her mountain of debt.

Another advantage with Federal loans, if you are having trouble making your payments, the government will usually work with you to negotiate a deferment or a new repayment plan.

No matter what kind of loan you have though, Consumer Reports says talk to the lender if you can't keep up to try and protect your credit rating.

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