As graduation season proceeds and many students prepare to rpay
their education loans, innovative grads are taking steps to lower
their college debt and invest for the future.
Amanda Barton, who earned a graduate degree in nursing from the
University of Pennsylvania two years ago, is among them.
"We hate debt," said Barton, 24, of her and her husband Adam's
attitude toward the $18,000 she amassed in college loans. "We're
trying to pay it off as quickly as we can."
College students borrowed $25.5 billion last year, according to
the U.S. Department of Education, up from $16.5 billion in 1993.
Undergraduates who take out loans have an average $11,500 in debt,
according to the Student Loan Marketing Association, or Sallie Mae,
a government-chartered purchaser of one in three federal student
While most grads entering the work force have limited resources
for anything beyond basic expenses, there are several ways to pay
down their debt, including tailored refinancing, consolidating
loans and, even, investing.
"We looked at paying off loans in terms of where we could get
the most bang for the dollar," said Barton, who opened an
individual retirement account after graduation and invested in an
income growth fund.
Some 4.5 million students took out federal loans last year, the
Department of Education said. While about 45 percent of students in
four-year programs are borrowers, that figure rises to more than 50
percent for graduate students, said attorney Robin Leonard, author
of "Take Control of Your Student Loans," to be published in July.
That fact notwithstanding, most financial planners agree recent
grads should first focus attention on another financial thorn
affecting many of them - credit card debt.
When Tad Benson earned his graduate degree at the University of
Southern California's School of Public Administration, he had close
to $19,000 in outstanding loans. The 28-year-old fund-raising
consultant in Pasadena, California, also had several thousand
dollars in credit card debts, which he must repay at twice the 8.25
percent interest rate he carries on his college debt.
Paying back the student loans is easy, Benson said. "It's the
credit cards that are the problem."
Benson is not alone.
"Right now we're seeing students with $10,000 to $20,000 in
student loans and matching amounts on plastic," said Jennifer
Reihm, a school relations representative at Chela Financial, a San
Francisco-based lender that holds about $1.3 billion in loans. "You
can be eaten alive by interest rates."
While making minimum monthly loan payments on an entry-level
salary can be very taxing, it's not impossible. People who can't
afford standard minimum payments - typically $120 for each $10,000
borrowed on a 10-year term - can arrange a plan to fit their budget
"Figure out what your comfortable level is," said Scott Miller,
director of government relations at Sallie Mae. "You probably can
find a repayment plan to meet that amount."
An income-dependent plan lets the borrower pay a percentage of
income. Chela's plan lets borrowers pay as little as 4 percent of
monthly gross income or the monthly interest due on the loan,
whichever is greater. …