NEW YORK -- Sometime in September, everyone with a federally guaranteed student loan will have many more options for paying it off. That's when the government's new loan-consolidation program will open for business. You can take one or all of the loans you're repaying to private sources and refinance them with the government instead.
Why might you want to switch? If the government offers better repayment terms and options than you can get in the private market. Here's what your standard choices are going to be:
* 1. An extended repayment plan. This reduces your monthly payments by stretching them over a longer term. How long depends on how much you owe. For debts of less than $10,000, you'll be allowed up to 12 more years to repay, with a minimum payment of $50 a month. Debts of $60,000 or more can be refinanced for as many as 30 more years. You're charged a variable interest rate -- currently 7.4 percent and capped at 8.25 percent.
Think twice, however, before extending the term remaining on your loan. That adds to your interest cost, which could make the new loan more expensive even at a lower interest rate.
* 2. A graduated repayment plan. You pay over the same length of time allowed under the extended plan. But your payments start low and rise every two years, on a fixed schedule. This arrangement works well if your first job pays peanuts but your income gradually goes up. If it doesn't, you can escape higher payments by switching to the income-contingent plan (see below).
* 3. A standard repayment plan, like the one used for private student loans. You make fixed monthly payments of at least $50, to pay off your loan in a maximum of 10 years. If your current loans are at 9 percent, you'll like the government's lower rate.
You can prepay this or any other loan without penalty, to reduce your interest costs even further.
* 4. An income contingent plan. This generally bases your monthly payments on the size of your debt, your adjusted gross income (including your spouse's) and how many dependents you have. If your income is low -- say, $6,000 or less -- you might pay nothing, depending on how much you borrowed. Otherwise, you'll owe anywhere from 4 percent to 15 percent of income, usually based on what you reported on last year's tax return.
If your earnings stay low relative to your debt, this plan can minimize monthly payments for many years -- and that includes some middle income borrowers, as well as people with lower incomes. And you may never have to pay the full bill. If you still have a balance outstanding after making the required payments for 25 years, the rest of your loan will be forgiven.
Anyone struggling to make ends meet should see if income-contingent payments can help. The toll-free federal hot line is 800-4FEDAID. At the moment, the operators there can give you only general information. But they'll take your name and address, for mailing the loan-application forms.
The last word hasn't been spoken, however, as to how big (or small) income-contingent payments should be. The current rules run for only one year. Education lobbyists had a hand in shaping these rules, but many aren't happy with the outcome. They'll be making formal comments to the Department of Education, hoping for changes in future years. Among the issues under debate:
* Are the monthly payments so lenient that they will encourage overborrowing? The Clinton administration believes not, but it's all a guess.
* Are the middle classes being coddled? Rep. Thomas E. Petri, a Wisconsin Republican, thinks that loan repayments have been lowered too much for borrowers with middle incomes and reduced too little for people with low-income jobs.
* Is there fair treatment for married couples with a double student debt? Because of the way their joint payment will be allocated, says Petri aide Joseph Flader, a larger loan could be paid off faster than a smaller loan. If the couple divorces, one could be debt-free while the other would still owe a large sum.
* Do borrowers understand the consequences of super-low payments? Often, you won't be paying enough to cover the interest on your debt. That unpaid interest will be added to the loan balance -- meaning that you'll pay interest on interest. This compounding can continue until your loan is 50 percent larger than the one you started with. After that, you pay simple interest with no compounding -- but you have a much more daunting debt. Education-industry groups want less compounding. But that would raise the program's cost.
Maureen McLaughlin, a senior policy adviser to the Education Department, thinks that the many new options for repayment will help borrowers, not endanger them. "We will be giving them information on how they can repay and what it costs over time," she says. Students will need to be taught that, if they can afford it, shortest terms are best.
Jane Bryant Quinn is a syndicated columnist. Write to her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y. 10022.