YOUR MONEY-Class of 2013 guide to student loans

Fri May 24, 2013 1:48pm EDT

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(The author is a Reuters contributor. The opinions expressed are her own.)

By Kathleen Kingsbury

BOSTON May 24 (Reuters) - College graduates are carrying more than just their diplomas this spring as they enter the real world: student loan debt - a lot of it.

Seventy percent of the Class of 2013 is graduating indebted, with an average balance of $35,200, says a recent Fidelity Investments survey.

This graduating class also faces a new payback regimen: They won't get the six-month interest-free grace period their older siblings saw, while repayment options for those who graduate into low-paying jobs will be more generous.

The best payment plans can save you money and buy you time. So collect the diploma, toss that mortarboard in the air, and make sure to choose wisely when it comes to repaying your loans. Here's how.

TAKE INVENTORY

"Know how much you owe, to whom you owe it, and when you need to start making payments," says Lauren Asher, president of the nonprofit Institute for College Success & Access, a research and advocacy group.

Identify your lenders and make sure they know how to reach you. "If they send a bill to an email or mailing address you're no longer using, you are still responsible for paying it on time," Asher says. Failure to do so can hit your credit score.

Federal loans include Stafford or Perkins loans. Private loans are generally issued by a bank or finance company. Every private lender will have its own interest rates and pay-back rules. Federal rules are standardized.

Your on-campus financial aid office can help - with information and advice. And, it is required to provide exit interviews. The U.S. Department of Education [link: studentaid.ed.gov/repay-loans ] also provides online support, including a repayment calculator.

CONSIDER CONSOLIDATION

You can choose to roll all of your federal loans into one big loan for simplicity's sake, and this might be a good time to do that, because current interest rates are at or near all-time lows. The new loan's interest rate would be the weighted average of all the interest rates being combined, rounded up to the nearest 1/8 of a percent and capped at 8.25 percent - higher than most of today's graduates would encounter.

But consolidation is not for everyone. It generally lengthens the repayment period from 10 to 30 years, so you will pay more in interest over the long term.

Federal loans can't be consolidated with private loans, though some private lenders do offer several refinancing options.

PICK A REPAYMENT PLAN

This year's grads benefit from a broad range of repayment options on their federal loans; they basically have the choice of lowering their monthly payments or lowering their total interest costs. Even students who consolidate their loans can choose among repayment options. (There is a full menu at the Education Department's website, studentaid.ed.gov/repay-loans#repayment-plans).

Those who don't actively make a choice will be automatically put into a 10-year plan, with payments that could place a hefty burden on starter salaries.

Graduates who are moving into low-paying jobs or still trying to land their first job can choose a new repayment option. The Pay As You Earn plan, an Obama Administration initiative launched last December, pegs monthly payments to discretionary income.

That can open doors. Ask Katie Hutchinson. After an undergraduate turn at Pennsylvania's Swarthmore College and then midwifery school at Yale University, Hutchinson was volunteering in Africa for Doctors Without Borders and trying to keep up monthly loan payments of $400. After she enrolled in Pay as You Earn precursor, the monthly amount dropped to $27.

"When the larger payments went away, a huge weight was lifted," Hutchinson says.

Pay As You Earn payments can be as low as zero. The formula is complex, but basically requires you to only pay 10 percent of your discretionary income - the amount it exceeds 150 percent of the poverty rate.

Furthermore, if after 20 years you still have a balance, it would be forgiven. For public or nonprofit sector workers - teachers, for example - debt is forgiven after 10 years.

To qualify, your income must be below a certain level - typically if your annual salary is less than the amount you owe.

START MAKING PAYMENTS

Though this year's graduates will get a six-month grace period before they must start paying back student loans, interest will start accruing on graduation day. So it makes sense to start payments on all loans as soon as you've selected the right repayment plan. At 6.8 percent, a $5,000 loan will add $160 in the first six months that will continue to be part of your loan balance and thus compound additional interest.

To stay on top of payments - and potentially get a .25 percent discount on interest from a private lender - sign up for automatic monthly payments via a checking account. After one year of consistent on-time payments, many private lenders offer an additional discount of .75 percent.

Finally, making regular on-time payments of your student loans will help you build a good credit score.

Congratulations, and welcome to the real world. (Follow us @ReutersMoney or here Editing by Linda Stern and Gunna Dickson)

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