How to Restructure School Loans

After a four-year college experience, many graduates suddenly face huge indebtedness. The cost of higher education has increased dramatically over the years, while wages and salaries have increased at a snail's pace. Many students have taken advantage of loan-restructuring programs in order to manage and pay down student loans.

Instructions

1

Pull a copy of your credit report. (See the Resources section for a link to a site that offers a free copy.) Review your full report and confirm all student loans. Most students have more than one outstanding loan. The federal government's aid program works in such a way that loans are not aggregated, but rather a new loan is opened for each semester of school. Make sure each account is distinct and active.

2

Place all loans in forbearance if you are in dire credit straits (if, for example, you are about to default on everything). Forbearance stops payment collection while interest still accrues, essentially preventing the loans from showing as defaulted on your credit report. Call individual lenders to request forbearance.

3

Consolidate your accounts. A consolidation loan will reduce your stress and eliminate multiple payments throughout the month. Also, while all of your current loans likely have different interest rates, a consolidation loan will apply a new interest rate (hopefully lower) to all of the debt, potentially saving you thousands in interest payments over the course of the loan. Check the Resources section for a reputable consolidation service.

4

Check to see if you are eligible for the new federal program Income-Based Repayment. Scheduled to launch on July 1, 2009, this program sets payment caps on all federal student loans based on a borrower's income. These programs will apply only to loans on which the student is the primary borrower. (Check the Resources bar for a link to check your eligibility.) The general rule is as follows: if a your income is 150 percent below the poverty level (see Resources for a link to determine the poverty level in your state), you need not make any payment, or your payment will be 15 percent of any money earned above that level. In most cases, this payment works out to about 10 percent of a borrower's total income.