Sixty percent of graduates from the class of 2011-12 entered the real world with student-loan debt --- having borrowed $26,500, on average.
That's not small change, especially when you consider that interest charges will add thousands to debt payments over the life of the loans. It pays -- literally -- to understand your payment options.
Repayment is a mountain you can climb, with the right guide. Here are seven things that can help (or maybe hinder) your debt repayment:
1) You can cut the interest rate on your federal student loans by 0.25 percentage points immediately with one simple step. Sign up to make your monthly loan payments via automatic debit, and your interest rate drops. It's that easy.
2) You can extend your repayment period on your federal loans. Borrowers who have $30,000 or more in federal loans can choose the extended repayment plan, which lowers your monthly bill by lengthening the repayment period to as long as 25 years.
3) You can make smaller federal student-loan payments -- and even have some of your debt forgiven -- if you don't earn much money. Income-based repayment plans, such as Pay As You Earn, are available for borrowers who have a lot of debt relative to income. The plans allow you to put 10% of your "discretionary" income (the amount by which your income exceeds 150% of the poverty line) toward your loans over 20 years, after which any remaining amount is forgiven.
4) Dropping out of your repayment program could cost you. For example, consider the federal TEACH grant, which provides up to $4,000 for those who commit to teaching low-income students in high-need fields for at least four years. If you don't complete your service, the grant converts to an unsubsidized Federal Direct Loan, or Stafford. That means you will repay every dime of the grant with interest starting from the day you received the award. And if you decline a subsidized Stafford loan -- with a current rate of 4.66% -- to accept a TEACH grant, you lose twice because the grant converts to the higher rate.
5) Small towns can offer big debt relief. For example, in exchange for moving to one of 77 rural counties in Kansas, recent college grads receive up to $3,000 per year (for a maximum of five years) to help pay back loans. Other struggling regions are following suit.
6) You'll pay taxes on loan-forgiveness awards from those Kansas counties or from organizations such as the Peace Corps and AmeriCorps. For example, a young adult in the 15% tax bracket who applies $5,645 in loan-forgiveness awards toward a loan will trigger $847 in taxes due the following spring.
7) Interest rates on some of your subsidized Staffords may kick in sooner than you think. Until recently interest was deferred during the six-month grace period that new grads have before they must start repaying student loans. But for loans issued between July 1, 2012, and July 1, 2014, interest starts accruing the moment grads hit the real world. This year's crop of grads will likely have a combination of loans that gain interest during the grace period and those that don't.