How Grads Can Climb Out Of the Hole

By Michelle Singletary
Sunday, June 3, 2007

You've got the college degree, and now you're stressed about what to do with the debt.

"Even if your student loans exceed your annual salary -- which is, unfortunately, a common phenomenon these days -- you can knock down those debts and start to regain control of your financial life," Lynnette Khalfani says in her new book, "Zero Debt for College Grads" (Kaplan, $14.95).

Those aren't just words coming from someone who doesn't understand your financial pain. Khalfani, a former Wall Street Journal reporter and CNBC correspondent, knows what's it's like to climb out of a debt hole. She paid off $100,000 in credit card debt in three years by negotiating lower interest rates, doubling and tripling her minimum payments, and using every windfall she received -- tax refunds and year-end bonuses -- to pay it down.

"I realize that the situation may seem bleak, if not downright impossible," Khalfani writes. "But trust me when I say that it is possible to dig yourself out from your debts."

Some of the best advice comes from people who have gone through something and managed to overcome their troubles. That's why Khalfani's book on how parents and students can pay down student loan debt is the Color of Money Book Club selection for June.

The book's release is timely. Lenders are bombarding graduates with offers to consolidate their student loans. And for those considering consolidation, you might want to make that decision before July. The federal government recently announced that as of July 1, students and parents with variable-rate Stafford and PLUS loans will see their interest rates go up slightly.

Students with variable-rate Stafford loans will see an increase of 0.08 percentage points, to 7.22 percent. Parents will see a similar increase, to 8.02 percent.

Graduates still in their grace period (the six months after graduation) can get a lower interest rate. But Khalfani cautions that people need to consider the pros and cons of consolidation.

Khalfani's book starts by giving graduates and parents some general money-management advice. After all, you won't be able to pay off those student loans before a decade passes unless you have a handle on the basics -- how to budget, save and cut expenses.

The bulk of the book focuses on the world of student loans, both private and federally backed borrowed money. Not surprisingly, many graduates don't know the terms of their loans, much less who the lenders are.

Khalfani worked with AOL Coaches, a section on AOL's Web site that provides videotaped tips from leading experts, to look at what people think about their student loans. In an AOL online survey of 400 respondents, 78 percent said they spent less than a day researching their financing options.

But "a lapse in judgment when it comes to educational loans can prove near-fatal to your financial life," she writes.

Khalfani lays out some strategies for getting rid of this debt, explaining various options that allow borrowers to lower their monthly payments. She provides guidance and warnings for parents considering co-signing for a student loan.

Wondering if there are programs to help pay off your debt? There are, Khalfani writes. If you're a federal government employee, the Federal Student Loan Repayment Program allows agencies to make payments on certain workers' federally backed loans, up to $10,000 a year.

Khalfani said it took her 12 years to pay off her $40,000 in student loans because she made only the minimum payments.

"The lesson I learned was that even if you consolidate and have an easy, low, fixed monthly payment, don't just forget about your student loans like I did," she says. "If you later start to make more money and can afford to pay more toward the school debt, I think you should do so."

In the AOL survey, among respondents over 35, 62 percent said they're still paying off their student loans. Sixty percent said they couldn't sleep at night because of this debt.

They can't rest peacefully because debt is a bad four-letter word, even for loans used to attend college. I know for some, student loans seem necessary. At least by turning to "Zero Debt," you get a blueprint on how to get rid of this albatross.

If you're interested in discussing June's book selection, join me online at noon Thursday, July 5, at Khalfani will take questions about student loans.

In addition, every month I randomly select readers to receive a copy of the book, donated by the publisher. For a chance to win a copy of "Zero Debt for College Grads," send an e-mail to Please include your name and an address so we can send you a book if you win.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

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