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Preparing to Pay

Now that you’ve left school and earned your degree, you’ve to pay your loan money back. Hopefully, you want to start the loan repayment process with the blueprint we covered last week in our blog.

That means gathering all your loan documentation that you so carefully stored so you know exactly how much you owe, how much you’re going to have to pay each month, and what your final loan obligation is. You’re also going to have to know where to send your check. Normally, your lender will send you a monthly invoice detailing exactly where the money should go.

In summary you should have the following loan documents on hand:

Any loan applications, promissory notes, loan statements, and loan transfer notices.
All correspondence between you and your lender. Keep documents from your school’s financial aid office, too
Exact addresses, phone numbers and e-mail contacts of your lending institution. Again, the same information is helpful for contacting your school’s financial aid office.
Exact names of any contacts you may have already spoken to at your lending institution, or school. Having a good contact is a real boost - -when you have a question or a problem, you can start by contacting that person directly and go from there. A friendly face always helps.

Know Your Promissory Note

In the first bullet point above, I mention the term “promissory note”. I know; it sounds dry and wonkish, but it’s a term you should know.

When you borrow money from a lender, that lender will want you to sign a contract stipulating just who is going to do what, when, and in what amount. In other words, a promissory note.

A promissory note says that you swear on a stack of Bibles to repay the loan under the terms agreed to within the loan. Since a promissory note is a legal document, you need to understand how it can impact you down the road. So read it, maybe have a lawyer read it, or someone knowledgeable about contract law your school’s financial aid department, and understand what it means before you agree to the contract.

What’s a promissory note comprised of? Contract particulars include the amount you are borrowing, the interest rate and fees tied into the loan, the timeframe of the repayment period, and under what circumstances fees and collection costs may be added to your student loan bill.

Not Paying? Sorry, Not Your Best Option

When you signed your promissory note and accepted your student loan, you pledged that you would pay the money back. By meeting that obligation, you gain the type of credit that will enable you to buy homes, lease cars, send your own children to school one day, and all that other good stuff that comes from good financial credit.

But what if you don’t repay your loan? Bad news. If you don’t pay off your loan you get branded with the “D” word - -as in default (or debtor, too, for that matter). The downside of default includes years of bad credit rating, garnishment of wages to pay your student loans (you didn’t think the lender would give up that easily, did you?), seizure of tax refunds, and pile upon pile of added interest rate and administrative (late charge) fees.

Call it spiritual debtor’s prison, where the lender locks your financial life up for years and throws away the key. No warden, either.

So, it’s always best to pay your debt. No matter what.

But . . . if you absolutely can’t pay, take heart. Later on in the book we’ll go into great detail and discuss what to do if you can’t pay your student loan.

Published Jan 27 2007, 12:40 AM by moneycoach
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