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Graduating Soon? Time To Get Out Your Checkbook!

This year, thousands of students will graduate and get that expensive piece of paper that says they survived college. And of those students, close to 85 percent will have a common fear: paying back all those student loans.

By mid-November this year, the average graduate will be looking at a bill of $18,900, according to a recent study by Nellie Mae. Graduate degree students, hold on to your hats: those extra few years in school cost an average of $45,900.

A student loan repayment bill can be as shocking than getting a fork stuck in light socket, and often lasts longer. On top of that, student loans are harder to run away from than the FBI.

School loans are almost immune to bankruptcy, and students that don’t pay their bills face stiff penalties, such as poor credit ratings, IRS penalties, and garnishment of wages — not ways to begin a life after college.

However, with today’s job market, some students don’t have the cash to begin paying the full amount due on these loans. While loan consolidation seems an attractive option considering today’s lower rates, it may not solve all of your problems. When consolidating, you can combine most student loans into a package, making for a single low monthly payment.

The downside of this strategy is that lowering your payment doesn’t necessarily mean you have less to pay, but rather that it will take longer for you to pay it all back. Ten years is the average time it takes to pay back student loans. That average is increased when consolidating and can as much as double that amount of interest you pay! So in the end, you may simply pay more when you consolidate.

Just look at these numbers: If you ran up a $15,000 bill at about 8 percent, the total tab should come to $21,839. On the flip side, if you consolidate at the same amount, your bill will come to just over $25,800! That extra $4,000 could have been part of a down payment on a car or house, or paid for that after-college spring break you couldn’t afford while you were in school.

If you are having problems making your payment, there are repayment options out there. The problem is that they all cost you more money over time.

Graduated Repayment: A Payback Plan That Won’t Completely Break the Bank!

This plan lets you start off by paying smaller monthly payments that increase over time. This method is great if you are at entry-level job, and plan on working your way up the corporate ladder. One of the benefits is you still can pay off the loan in the 10-year time period. On the down side, you’ll end up paying 5 percent more than you would have with normal repayment.

Income Sensitive Repayment: Save Now, Pay Later.

Like graduated repayment, this option also allows for low monthly payments that gradually increase. The payment simply follows your salary, so it is a bit more flexible than graduated repayment. The bad part of this option is that repayment takes 15 rather than 10 years. And as we mentioned before, the longer the loan the more in interest you pay.

In case you’re looking for other ways to lower the cost of your loans, some lenders have payment incentive programs that will cut your rate by as much as two percentage points after making a set number of payments. If your lender doesn’t allow for any other alternative methods, then try another lender.

In the end, student loans were worth the cost because they helped get you through school. So take the time to seek out help in deciding the best way to pay them back.

Jose Vazquez, a Marketing Major at Western Illinois University, has been awarded 27 scholarships, amassing more than $100,000 in aid to date. He is the author of the book Free Cash For College: The Everyday Students Guide To Financial Aid, which can be found at www.vazquezmedia.com. Vazquez is also a public speaker that gives seminars on financial aid and scholarship strategies.

© 2008, Young Money Media, LLC. All rights reserved.

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