Take a look behind you. Do you see it?… In the far distance - but quickly catching up-are your student loans. That's right, all those loans that you saw only as figures on paper are coming up fast and they're screaming, "Remember us? Pay us off! PAY US OFF!"

If this personified vision of your student loans doesn't chill you to your very core, then how does this make you feel: If you're the average American student, you owe about $17,000 in loans after graduation. Quadruple that amount if you're the average grad school graduate. Some students naively believe that they can outrun or ignore their loans, but they're gonna screw themselves over down the line: lenders are sticklers about being paid back, anal about timely payments, and prepared to completely mess up your credit history.

Now are you feeling scared? Take comfort in the fact that the majority of higher education graduates are in the same boat. Nevertheless, student loan repayment is a big, complicated deal. We'll help you decipher the messy jargon and figure out a plan of action.


If you're like most students, you went through college or grad school idly aware of the fact that you were spending a whopping amount on your education, but not really knowing (or caring) how much it was, where the money was coming from, or how you'd eventually pay it back. We hope you enjoyed those years, because now it's time to pay for them. The first major task to tackle is to figure out who you're paying and how much you owe.

You can find the answers in all those notices that your lender(s) and your school's financial aid office have been sending to you. If you were wise enough to keep most of your notices, then start sorting through them and answer the following questions:

What types of loans did I take out?
How much do I owe in total?
Who is (or are) my lender(s)?

What types of loans did I take out?

Many types of loans exist. Some of the more popular ones are Stafford, Perkins, HEAL, and PLUS loans. You won't have to worry about PLUS (Parent Loans for Undergraduate Students) because that one is your parents' responsibility (suckers!), but mostly everything else is your burden now. Take time to go through all the contracts you signed (and kept a copy of, we hope) and make a list of the loans you have.

How much do I owe in total?

The Department of Education - which decides how much and what types of financial aid you're eligible for - may have offered you $8,000 in loans per semester, but you (or your parents) may have decided that you only needed to borrow $5,000. One way you can figure out how much you actually borrowed is to take a look at the contracts you signed - they should have the dollar amount spelled out to the cent. Another way is to take a look at the notices that your lenders have been mailing you each semester (which tell you how much you borrowed and how much you now owe).

If you come across the financial aid reward letter that lists all the financial aid you're eligible for, be careful not to mix up grants with loans. Grants such as the Pell Grant, the SEOG (Supplemental Education Opportunity Grant), and others do not have to be paid back. It was free money. Rejoice!

Who is/are my lender(s)?

Here's how it usually works: You choose a bank to put up your money, you sign all sorts of forms, then the bank hands you the money in semesterly installments. Usually - but not all the time - the bank then turns around and sells your forms to Sallie Mae for the same amount. Sallie Mae may is no country bumpkin; officially known as the Student Loan Marketing Association, Sallie Mae was established by Congress to generate money for students to borrow, and it is one of the largest loan providers in the country. By selling off loans, banks gain more money to lend other students. What this means for you is that you're now in Sallie Mae's hands.

Sometimes Sallie Mae will decide to turn around and sell your loans off to yet another loan provider (what are you, a two-cent whore?). In this case, the new lender is now responsible for getting you the money you need for school (and getting it all back from you when you graduate). So even if you started off borrowing money from the bank, you could end up owing Sallie Mae, or even Sallie's inbred two-fingered cousin.

All this transferring is done without your permission, but you are informed of each transfer. The amount that you borrowed remains the same, so if you know how much you owe, the only thing you have to do is figure out who you owe it to. Your latest records will tell you who.

If you've thrown out all your notices, contracts, and documentation, you may have just read through all this with a look of sheer horror on your face. Gotcha! While you really should've kept better track of your records, this is one time where you can get away with being a mess. All you have to do is contact your school's financial aid office and ask them about your record. Even if the office can't help you, they'll be able to get you in touch with your state's loan guaranty agency, where you'll be clued in on your debts. Believe us, someone will have a record.

Of course, without any personal records, you won't be able to effectively dispute dates, amounts, or other screw-ups, so if you're still in school, start keeping track of all your records.


Unless you die, you won't be able to get away from paying off your loans… but you do have the option of paying them off in the form of service. This is called loan forgiveness and you'll have to do more than say you're sorry. The government decided that it'd take care of your debts for you if you'll agree to put some time into one or several of the following programs:

Volunteering loan forgiveness
Law school loan forgiveness
Med school loan forgiveness
Occupational or physical therapy education loan forgiveness

Volunteering loan forgiveness

  • Americorps. If you're willing to devote a year of your life to volunteering for Americorps, you'll be rewarded with $4,725 to spend on your college debts, and a stipend of up to $7,400. That doesn't sound much like volunteering to us, but hey, we didn't write the dictionary. For more information, visit the Americorps website or call them at (800) 942-2677.

  • Peace Corps. Go traveling with the Peace Corps and you'll get to defer most of your student loans until after you leave the program. Not only that, but you may even get some of your loans reduced (maybe as much as 70%, if you're lucky!). Call (800) 424-8580 for more details.

  • VISTA (Volunteers in Service to America).VISTA, which is all about community development and ending poverty, homelessness, and illiteracy in the United States, will pay off $4,725 of your loans if you join in on their cause for at least 1,700 hours. Call (800) 942-2677.

  • Military Service. Be on your way to complete loan forgiveness and buff up at the same time! If you join the Army Reserve or the National Guard after graduation, you can receive up to $10,000 to pay off your loans. If you're the sort of person who doesn't mind the occasional brush with death, ask to be stationed in areas of hostility and you could get even more money.

  • Teaching. If you like to get your summers off, then sign up to teach full-time under certain conditions and your loan will be completely forgiven. Your options are 1) to teach special ed, 2) to teach in a school that services kids students from low-income families, or 3) to teach in a designated teacher-shortage area.

  • Social Services. If you're a full-time provider of early intervention services for the disabled, employee of an agency that provides services to families of low-income communities, a full-time nurse or medical technician, or a full-time law enforcement or corrections officer, your loan can be completely absolved. Restrictions (that involve the date your loan was made) apply. You should contact the various agencies or organizations for more details.

Law school loan forgiveness

If you've just been through law school, it's likely that you owe between $80,000 and $125,000 in loans. No wonder you chase ambulances. Fortunately for you, more than 30 law schools in the U.S. allow loan forgiveness to students who take on public interest or non-profit positions. For a list of these schools and more information, visit the Equal Justice Works.

Med school loan forgiveness

National Health Service Corps offers a program in some states that will help you pay off your colossal med school loan and give you an annual salary in exchange for practicing medicine in underserved areas. This is an OUTSTANDING deal, so check out the Office of Statewide Health Planning and Community Development website or call (916) 654-1833.

Occupational or physical therapy education loan forgiveness

When you apply for a job in the occupational/physical therapy field, ask about your employer's loan forgiveness package. Because there is such a high demand for occupational and physical therapists, many hospitals and private health-related organizations will offer to pay off some of your student loans if you agree to lend them your valuable expertise.

If you've just read through all your options and you 1) don't qualify, 2) hate helping people, or 3) want to make money immediately and not 5 years down the road, that's fine too. Just continue to step 3 to learn about some more traditional repayment options.


What happens if you don't pay

Before we get into the various loan repayment options, let's take some time to dispel some of the clever schemes we know you're plotting for getting out of your expensive situation:

  • Moving. Just because you move doesn't mean that the loan people won't find you. We're not going to get into their clandestine and evil tactics; just realize that not only can you not hide, but that you shouldn't even try. Changing your name doesn't work either.

  • Ignoring your monthly loan repayment bill. Even if you got into a nasty fight on
    the phone with your lender's customer representative and have decided to teach him a lesson on manners by refusing payment, you'll soon discover that it's in your best interest to drop your grudge. Here's a scenario of what happens if you choose to completely disregard your student loans:

  1. The first monthly bill arrives in your mailbox. You put it on your desk and forget to pay.

  2. A second notice arrives in your mailbox. It accuses you of being a delinquent. (You achieve delinquent status the day after your monthly repayment is due and it's not in the lender's hands.) You scratch your head, add that notice to the growing pile on your desk, and turn your attention to the Victoria's Secret catalog that accompanied the notice.

  3. Two weeks later, you'll start getting phone calls and more notices. You lender is required to make at least four phone calls and send four of those letters before sending a final demand letter (about 5 months after the loan payment was due). This letter will tell you that unless you pay up now, a default claim will be filed on your loan.

  4. After a default claim is filed, your lender will turn your case over to a guaranty agency and you'll get a nasty phone call from them. If you don't negotiate some sort of deal within 60 days, your guaranty agency will report you to the national credit bureaus.

  5. Now the fabulous life you dreamed of leading starts to crumble around you. You'll be ineligible to receive credit cards, an apartment, or a mortgage for a car or house. The government has the right to deduct money straight from your income, and it's unlikely that you'll ever date again. We'll tell you how to survive a default later, but it's still not a pleasant way to live a life.

Options for paying

Here's the general deal on loan repayment: After graduation, you'll get 6 months of freedom from loan repayment. If you're smart, you'll use these 6 months to get a job. When loan repayment begins, you'll pay at least $50 a month (unless you're in forbearance, deferment, or your lender agrees to a smaller amount) until your entire loan (plus interest) is paid off. In any given month, you can opt to pay off more than your monthly requirement without penalty. You have to pay off your loan even if you aren't satisfied with the education you received and can't do jack squat with it. So you went to med school and ended up starting an Internet company? Tough cookies - you still gotta pay.

Here are your four main payment options. Keep in mind that you can switch from one to another, depending on your financial status:

  • Option 1: Standard Payment. If you land a good job out of college and can afford to make steep monthly payments, go with the standard payment schedule. Under the standard payment, you'll have finished paying off your debt within 10 years, and you'll have the best interest rate. This is the quickest way to pay off your loans, but it also requires the highest monthly payments.

  • Option 2: Graduated Payment. This is the payment method for people who get out of college expecting to make a modest but steadily increasing wage. The payment requirements will start off gentle, then increase every couple of years for the next 10 to 30 years.

  • Option 3: Income-Based Payment. If you're in a commission-based or seasonal business (say, selling houses or selling ice cream from a truck), your income probably vacillates. So your monthly payment bill will be proportional to the amount you are currently making and you'll get up to 15 years to pay it all off. The good news is that you will always be able to pay your loans. The bad news is that if you have a particularly good month, you never get the chance to enjoy it.

  • Option 4: Long-Term Payment. With this schedule, you'll be allowed to pay the least possible amount per month for 10 to 30 years. If you're a procrastinator by nature and this schedule sounds like it's your cup of tea, here's the catch: by the time thirty years is up, you may have paid double the original amount of your loan. This payment plan has by far the worst interest rate.

If you need to hear some numbers before making a decision on a payment schedule, contact your lender. (If you don't know who your lender is, contact your school's financial aid office.) Talk to a customer rep and ask them all the questions you want.


This step is about delaying your payment today, but paying more interest in the long run.



Consolidation is a path that over a million graduates take each year. It basically consists of bunching all your separate student loans into one big loan, and then paying off that mother loan. If, for example, you're getting three bills in the mail every month for the three different types of loans you took out and each bill asks for $300, you're paying a grand total of $900 each month. If you simply can't afford to shell out close to a grand each month, consolidate your three loans and it'll act as if it were one loan - and you'll only owe $300 a month. Some people also choose consolidation because it's easier than keeping track of multiple student loan bills.

The downside of consolidation is, of course, the fact that it'll take longer to pay off your consolidated loans, and you'll end up paying a lot more in interest. You could, in the worst case scenario, end up paying three times your original loan amount. Also, if you plan on eventually going back to school and taking out more student loans, consolidation could mess up your chances for interest subsidy benefits on your future loans.

To find out more about loan consolidation, including whether you qualify for it (you may not), contact your lender or turn to the following resources (if appropriate):


If you find that you simply can't keep making monthly payments, no matter how small, you can choose to defer your loans. This means that for an amount of time that's negotiated between you and your lender, you won't have to pay a cent. Interest, however, will continue to accrue if your loan is unsubsidized ("subsidized" means that the government will step in and take care of the interest.) Not everyone qualifies for loan deferment - you must contact your lender and prove that you are currently trapped in financial difficulties before they'll give you the forms to sign. Our advice: practice your hysterical voice.


Forbearance is a three-month break from your loan repayment, but unlike with deferments, you don't need to be reduced to eating gruel to get it. Just call up your lender and state your case: you need a couple months to put a down payment on an apartment, your dog needs surgery, you're getting married and you don't want to wear a garbage bag. Your lender doesn't necessarily have to grant you forbearance, but if your reasons for requesting one are reasonable, then you may get one.


Here's a step for all of you who are currently getting your kneecaps smashed by a large hairy man named Vito because you refused to pay your loans. The fact is that you can still pick yourself up and beat this thing (though we do not recommend that you attempt to beat Vito… have you learned nothing?).

All you have to do is contact your loan holder and agree to make six on-time $50 payments. (The amount can even be lowered if you make a reasonable case.) At this point, you become eligible, once again, to apply for additional federal loans and grants. Make six more on-time payments and you're out of default. You get welcomed back to your pick of payment schedules and even the options of deferment and forbearance. Just don't ever screw things up again - not even we will be able to help you at that point.

If you need additional help with a defaulted loan or other general loan headaches, contact your school's financial aid office, or get some free booklets on loan repayment:

  • U.S. General Services Administration
    Consumer Information Center
    S. James Consumer Information Center - 6C
    P.O. Box 100
    Pueblo, CO 81002
    (Ask for the "Direct Student Loan Consolidation" and "Paying For College" booklets.)

  • Federal Trade Commission's Public Reference Branch
    Room 130, 6th Street and Pennsylvania Ave.
    NW Washington, DC 20580
    (Ask for a booklet called "Knee Deep In Debt.")

We're sorry if this SYW has been a little too "real life" for you, but we hope that it's helped clear up some of the murkiness surrounding student loans. And when you're forgoing that shopping spree to make a monthly payment, just remember that you'll be out of debt one day. Just think how happy you'll be when your kids go through the same misery…