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Advice: Read fine print on student loans

New Hampshire Union Leader

June 10. 2014 10:43PM

College and university graduates in New Hampshire, who have some of the highest student loan debt in the nation, could benefit from President Barack Obama’s executive order extending a program that caps government guaranteed student loan payments at 10 percent of a student’s income.

But the senior financial aid officer at the University of New Hampshire advises graduates and their parents to read the fine print.

“The fundamental question is, ‘Does this benefit students?’ And the answer is, ‘Maybe,’ ” said Mark Rubenstein, vice president for student and academic services at UNH. “One of the problems is the complexity of repayment options.”

Under an executive order signed by Obama on Monday, the administration will extend a 2010 law that capped monthly repayments to those who got loans before October 2007. The order could help an additional five million graduates nationally who graduated in 2008 or thereafter.

The average student loan debt of New Hampshire college students is more than $32,000, according to the Project on Student Debt, a nonprofit independent research and policy organization. The group noted that 74 percent of New Hampshire students graduated with debt. The national average for student debt was $29,400.

Monday’s executive order creates an opportunity for thousands of New Hampshire graduates who were not previously eligible to seek payment reductions on their government student loans. Private student loans, now a small part of the student loan market, are not affected.

“For some of those students, there is a benefit,” said Rubenstein, “The complexity of this is understanding which scenario makes the most sense for any particular student in any particular set of circumstances.”

To illustrate his point, Rubenstien logged on to and created a profile for an unmarried, New Hampshire graduate with $33,000 in outstanding student loans at 6.8 percent interest, earning $35,000 in adjusted gross income.

With no participation in a payment reduction program, that graduate will pay $380 a month on a standard 120-month loan, and over time will pay $12,572 in interest, for a total of $45,572.

The payment plan calculator on the government website offers six other options, each providing for a lower monthly payment, extended repayment periods, or in some cases both. As is usually the case with borrowed money, lower payments and longer terms mean higher interest.

Rubenstein’s fictitious graduate could use the program to bring his monthly payment to as low as $187 a month for 300 months, but would end up paying a total of $74,428 on $33,000 in loans.

And there is a whole range of options in between, including one for graduates who expect some loan forgiveness due to their chosen profession in fields like public health, law enforcement, military, non-profit sector or teaching in designated school districts.

“If you look at a $380 monthly payment going as low as $235 or even $187 a month, that could be $100 to $200 a month in a graduate’s pocket. At the front end, starting out a new career, that can be very helpful,” said Rubenstein. “I don’t want to diminish the value of providing relief to that student. But don’t lose sight of the back end, where the interest accumulates.”

Students need to start thinking about their repayment plans when they start to borrow, not when it’s time to repay, according to Rubenstein.

“This points to a larger challenge that we have as a country,” he said, “which is financial literacy. It would be helpful to have more information at the front end about what decisions we will face once we’ve accumulated the debt.”

Enabling more graduates to take advantage of lower monthly payments will help, he said, but it’s no panacea: “I’m glad to see any steps that are helpful to students, but I think it’s important that we at the college and university level do better at controlling costs, while helping families and students understand the debt they are taking on.”

Congress is considering legislation that would allow eligible borrowers with outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers.

Sen. Jeanne Shaheen, D-N.H., on Tuesday said that she will introduce an amendment to that legislation, calling for a central online portal so students can review all their federal and private student loans as well as repayment options.

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