Study student loan options

Graduating into a barren job market is stressful enough. When massive student loans await, the rite of passage can be downright terrifying.

Depending on the type of loan, graduates typically have about six months before the bills start arriving. Among the matters to sort out as the clock ticks down: picking a repayment plan, consolidating loans, weighing deferments.

"A lot of people are coming out of college with more debt than ever before, and they're graduating at a time when it's going to be harder to get job," said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit agency that runs the Project on Student Debt.

The group estimates that about two-thirds of graduates from four-year universities have student loans, with an average debt of about $22,000.

Asher points out that knowing your options can ease the burden. Here are five steps to help master your student loans.

Step 1: Know what you owe

The first step is understanding how a student loan works. Although the interest rate on federal loans tends to be favorable, it kicks into gear as soon as the loan is taken out. That means you've got four years of interest on top of your loans by the time you graduate.

And the meter on interest doesn't stop running during the grace period before repayment begins. The exception is with subsidized federal loans in which the government picks up the interest until the loan comes due. Students need to demonstrate financial need to qualify for subsidized loans. Interest on unsubsidized federal loans begins accruing right away.

To see all your federal loans and terms in one place, check www.nslds.ed.gov/nslds _SA. For private loans, you need to contact the lender if it hasn't contacted you.

Step 2: Pick a plan, but not just any plan

The standard repayment plan for federal loans typically is 10 years.

Extended plans can be tempting since they require smaller monthly payments. It also means you're paying interest over a longer period, which pushes up the cost of the loan.

"Use as short a loan term as possible. You don't want to be paying your own student loans when your kids are graduating," said Mark Kantrowitz, publisher of FinAid.org.

If you can't keep up with the payment schedule you picked, you can always switch plans. You're allowed at least one change a year with federal loans.

Step 3: Consider postponing payment

You can defer payment on federal loans under select circumstances, including military service, unemployment and economic hardship. With private loans, the rules on postponing payment (called "forbearance") are set by the lender.

Try to avoid delaying payment if you can, since interest continues accruing unless you have a subsidized federal loan.

Graduate school is one way to defer payment on most federal or private loans, but that can backfire.

You could qualify for economic hardship deferment if your income is below about $16,000, you get public assistance or work in public service.

Deferments for unemployment and economic hardship are limited to three years.

Step 4: See if you should consolidate

A consolidation loan lets you combine loans to make a single monthly payment. You also get a fixed interest rate for the life of the new loan.

One drawback to consider is that consolidation usually extends repayment, meaning the overall cost of the loan will be higher. A calculator on Loanconsolidation.ed.gov can help determine whether a consolidation loan will save you money.

There is no fee or cost to consolidate. Some federal loans, such as the Stafford and Plus loans, might charge a fee that is deducted from the disbursement check, but there should never be an upfront fee.

Step 5: Avoid default

Defaulting on a student loan comes with some ugly consequences.

To start, the default will go on your credit profile and likely obliterate your chances of getting any other type of loan such as a credit card or mortgage.

The good news is that defaults on student loans can be rehabilitated and erased from your credit report. With federal loans, that requires nine full payments during a span of 10 months. Private lenders might not offer rehabilitation programs.