There is more than $1 trillion in student loan debt in the U.S. By and large, the young consumers carrying this load are doing so at the most vulnerable point in their financial lives.
They are just starting their careers. If they are lucky, they have a job. In most cases, however, their salaries are on the low end. Yet a big chunk of their paycheck goes to making payments on their student loans.
President Obama took this concern to Georgia Tech this week, where he told students that, as valuable as a college education is, paying for it has become a crushing burden.
“The average undergrad who borrows money to pay for college graduates with about $28,000 in student loan debt,” Obama said. “That’s just the average; some students end up with a lot more than that.”
Student aid bill of rights
Obama signed a “student aid bill of rights” designed to make the student loan repayment process easier to understand and manage.
“We're going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you're falling behind, help you get back in good standing with reasonable fees on a reasonable timeline,” Obama told the students.
Just as with any other loan, such as a car payment or mortgage, you need to make payments to your loan servicer, the entity that loaned the money. Each servicer has its own payment process, so you should check with your servicer if you aren’t sure how or when to make a payment.
Remember, it's your responsibility to stay in touch with your servicer and make your payments, even if you do not receive a bill.
When payments begin
You don’t have to begin repaying most federal student loans until after you leave college or drop below the minimum requirement of half-time enrollment. The exception is PLUS loans, whose repayment begins once you have received the full amount of your loan.
Your lender is required to provide you with a loan repayment schedule that details when your first payment is due, the number and frequency of payments, and the amount of each payment. Your loan may have a grace period that gives you a little extra time before starting the repayment process.
The grace period gives you time to get your feet under you financially and to select your repayment plan. Not all federal student loans have a grace period and keep in mind, even during a grace period interest charges will accrue on most loans.
If you are called to active duty military service for more than 30 days before the end of your grace period, you will get the full 6-month grace period when you return from active duty.
Private student loans – obtained from a bank, credit union or university – have different terms that vary from lender to lender.
For example, Wells Fargo says payments begin 6 months after the borrower leaves school. However, some loans like Student Loan for Parents and the Wells Fargo Private Consolidation loan, payments begin once the loan funds have been received.
Regardless of the source of the loan, Obama said students need clearer instructions on the repayment process.