Easing The Sting Of Student Loans

When Cynthia Jackman Clark got her law degree from Suffolk University in 1990, she needed time off to study for the bar. But she had a problem: The $550-a-month bills for her $33,000 in student loans were to start rolling in only 60 days after graduation. That, along with rent and grocery bills, left her feeling "a little overwhelmed."

But Clark, now an attorney in Worcester, Mass., found a solution. She won a year's forbearance from her two lenders, giving her the necessary break from working. The delay boosted her average interest charges slightly but avoided the ugly credit-marring alternative of a default.

For many grads, paying student-loan bills is getting tougher. But as defaults climb past the 7% rate nationwide, both primary lenders and agencies that buy and administer loans, such as the Student Loan Marketing Assn. (Sallie Mae), are coming up with ways to help.

LET'S TALK. The simplest solution is to request a deferment, which can put off payments for six months to three years -- without interest accruing on federally subsidized loans. Borrowers can qualify on 15 grounds, including inability to find a job, serving in the military or Peace Corps, or going back to school.

People who don't plan to take up arms or textbooks can negotiate the more costly forbearance option with loan administrators. Generally, interest accrues during the forbearance period. Depending on the terms, the lender can require periodic interest payments or add the interest onto the loan balance.

A cheaper alternative is graduated repayment. This trims loan payments in the early years and steps them up later to suit the borrower's growing income. A borrower with an 8% loan of $10,000 would normally pay $122 a month. With graduated repayment, the bill could be changed to $75 a month for the first three years, $125 for the second three, and $180 for the remaining four.

BLENDED RATE. For borrowers with several loans, debt consolidation is another possibility. Consider the graduate with $23,000 out in three loans, one with a 12% annual interest rate and the others at 8% and 5%. By consolidating the loans at a 9% rate and doubling the payback period to 20 years, the borrower gets some breathing room -- though it would cost $14,336 in added interest charges.

The last choice you want to make is doing nothing, since a default means the bills come due immediately. "If people know they can't pay, just call," says Diane Saunders, spokeswoman for Nellie Mae, the New England Education Loan Marketing Corp. "We're not going to bite your head off."

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