Student loans due? Here's what to consider

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(MoneyWatch) For the class of 2012, this time of year brings college graduations -- and thoughts about how to start re-paying those student loans. As tuition costs climb and more people opting to return to school while the job market remains weak, folks are borrowing more to pay for college. As a result, the total owed on student loans is about $904 billion, up 8 percent from a year ago. Over 65 percent of students use loans to help finance their college costs, and students now carry an average debt of more than $25,000 upon graduation.

For most student loans, no payments have to be made while you are an actively enrolled student. But after you graduate, leave school,. or drop below half time enrollment, that changes. If you have a Federal Stafford Loan, you'll be required to begin payments in six months. The grace period for Perkins loans is nine months. Graduate students with PLUS loans will have to begin making payments six months after they are no longer enrolled at least half time.

Once you graduate, your lender will begin sending you repayment information in the mail, but here are two questions to begin thinking about now.

Should you consolidate your student loans?

This allows you to combine most of your small student loans from various lenders into one, fixed-rate loan, with one monthly payment.

The advantage of consolidating student loans is that you will have the convenience of making a single loan payment, and the payment will be lower than the total of the payments on all of the individual loans before consolidation. While this makes it easier to repay your loans, you will be paying more in interest over the life of the loan because you will be extending your repayment time. Use the tools at the Federal Student Aid website to compare the numbers for your loan situation.

How quickly can you afford to repay your student loans?

You generally have four options, ranging from 10 to 30 years. Of course, the faster you pay off your debt, the larger the monthly payment and the less interest you'll pay. But it may be difficult to make large monthly payments on a low starting salary. And if tackling these debts keeps you from investing in your employer's 401(k) or paying off your credit cards, you should definitely consider an extended repayment period with smaller, more manageable monthly payments.

Here's something to think about: On a $25,000 loan, you could use the typical 10-year repayment plan, and the monthly payment would be $287 per month. Or you could use the graduated repayment plan, where initially the monthly payment starts at about $197 and steadily rises to a high of $431 by the ninth year. By the end of repayment, you would have paid back $9,524 in interest on the 10-year plan, versus $11,389 in interest on the graduated repayment plan.

Check back in a few days when I'll explore how to begin repaying your student loans.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.