Paying off Student Loans
Student loans are designed to help students cover the costs associated with higher education. There are two main types of student loans, these being federal student loans and private student loans. Federal loans are distributed by the government, and often have lower interest rates and borrowing amounts than private loans, which are distributed through private lenders. Lenders offer many flexible student loan repayment plans, with customizable options including when repayment begins and the length of the repayment period. For example, repayment begins for some federal loans six months after graduation, while the repayment period for Perkins loans starts nine months after graduation. For private student loans, repayment may begin immediately after graduation.
About Paying off Student Loans
Paying off student loans in a timely manner should be a priority for any borrower. You must understand the amount of debt you take on, as well as the specifics of repayment. In many cases, students need to take out multiple loans to cover the cost of their education, and repaying multiple student loans can be challenging. If you do not know the exact details of your loan(s), you can miss payments, which may lead to default, which can have serious consequences for the borrower’s creditworthiness.
Key Repayment Terms You Need to Know
When you’re still in college as a full-time student. Most loans in the student’s name do not require to you make payments during this time. However, some private loans require interest-only payments during enrollment. Please be aware that loans in the parent’s name may require payments.
- Grace Period
With some loans, you have a grace period (six to nine months after leaving school) before you must begin repayment. When this grace period is over, you must start paying back your loan according to the schedule. If you require more time, check on your eligibility for a deferment.
A deferment gives you extra time before repayment begins. Deferments may be obtained prior to the end of a grace period. If you expect to need a deferment, make sure to allow enough time for your application to be processed.
What if you have a family emergency or other hardship that interferes with your ability to maintain your repayment schedule? You may request forbearance from your lender. This may allow you to reduce or postpone payments and possibly extend your repayment period.If your Stafford Loan debt totals more than 20% of your gross income, lenders are required to automatically grant forbearance. Forbearance usually lasts three to six months, and may be renewable annually for several consecutive years. However, be aware that interest accrues even during forbearance.
When you fail to make a payment when it’s due.
Your lender may place your loan in default if you miss required payments for nine months or longer. Simply stated: You do not want this to happen! How can default make your life seriously unpleasant? Let us count the ways:
- The entire balance of your loan becomes due and payable immediately.
- You are ineligible for any additional financial aid.
- You lose all eligibility for deferment and forbearance.
- Your credit rating takes a major hit, and you may not qualify for other types of loans or credit.
- Your paychecks may be garnished.
- Your tax refunds and bank accounts may be seized.
- You may be sued and lose in court, allowing the “repo man” to come for your car or other property.
Default on student loans has no statute of limitations, so penalties will continue in perpetuity until you pay off the debt or die.
Prioritize and Plan for Paying off Student Loans
Make a list of all the loans that you have to pay back and prioritize them according to their payback period. Choose a payment plan carefully at the time you are opting for a certain type of student loan. Most lenders offer monthly repayment plans with varying yearly terms, so if you cannot manage to pay during college, you may be able to defer payments until after graduation. You can also look for a loan consolidation option that allows you to pay off multiple lenders in a single payment.
Paying back Student Loans without deriving a proper plan often gets you into trouble. Don’t worry, though; we’re here to guide you. Ideally, you should begin planning for repayment while you are in college, and maybe even start paying down the principal on your loan then. Once you get a job, start paying back your student loans by putting about 10% of your monthly paycheck towards them. If you are having difficulty paying back student loans, consider student loan consolidation, a process that would allow you to consolidate your loans into one aggregate loan repayment amount for the month which can be lowered down as well if you can arrange for a cosigner with a good credit history.
How might I begin my repayment of student loans?
The process of repayment of student loans differs for each type of loan. Federal student loans offer the flexibility of deferred payments and a grace period that allows students to graduate without the tension of repayment. However, this is not the case for all loans. For private loans, each private lender has different criteria for repayment and other terms and conditions. Most student loans do allow deferred payment but federal loans do not always offer this perk.
Is loan consolidation an option to pay off student loans?
Yes. Students who have taken loans from more than one lender to cover their cost of education can look into loan consolidation as a way of making the process to pay off student loans easier. It becomes difficult to keep track of several repayment dates and amount in a month, so the single loan and monthly payment that consolidation offers makes it much easier to manage and pay off student loans. At times, loan consolidation also helps the student bargain for a lower interest rate.
What can help paying student loans?
The most important thing that can help paying student loans without much difficulty is planning. Before you commit to taking out a student loan, chart a repayment plan with ideas regarding how you’ll start making payments when they are due, and be ready to stick to this plan. Borrow only what you need, and not a penny more; furthermore, be aware of their payment timings, installment amount, duration and the interest rate. If you’re having trouble making your payments on the loan, consider filing for deferment or loan consolidation.
I’m not sure how to pay for college. How can I manage this?
How to pay for college is one of the most important questions for many high school students who are nearing graduation or who have already graduated. Fortunately, there are plenty of ways to pay for college. You can look into federal, state, institutional, and/or private sources to pay for college. Federal financial aid is the cheapest form of financial aid available, and should be the first means of aid sought by every applicant. State or institutional assistance programs are additional aid options, though are often less available than federal or private financial aid. Applicants who have exhausted from all other forms of financial assistance can look to private financial assistance as a final measure.
How long can you wait to repay your student loan? How long should you wait?
College on the Cheap’s Street Team asked students if they can wait until after graduation to begin repaying student loans, and most of them got the question right! Think you know the answer? Check out the video.
- FAQ Home
- A Guide to Lenders
- Be Smart About Private Loans
- Before Borrowing
- Choosing Private Loans
- Choosing the Right One
- Education Loan Borrowing Process
- Finding a Co-Signer
- How Much to Borrow
- Lessons Learned
- Rights Responsibilities
- Selecting a Co-Signer