Many students are delighted to sign the loan agreements that will allow them to attend college, but they could have a lot of questions when it comes time to repay the loan. Here are some strategies to help you better understand the payback procedure.
Establish the Terms
Examine the loan documentation for each of your loans to determine the remaining balance, monthly payments, and total number of payments. Go to your lender or, in the case of federal loans, the National Student Loan Data System at www.nslds.gov to obtain the information. You may incorporate your monthly budget with the amount you owe and the amount you have to pay each month once you know these details.
Select the Finest Payback Schedule
Your first loan installments will be computed using a regular 10-year repayment plan, meaning that there won’t be any changes to your monthly payment throughout the loan duration. Additional choices consist of:
- a graded plan, in which you begin with smaller payments and gradually increase them. That might be a wise decision if you anticipate an increase in income in the future, as most graduates do. However, the greater total loan amount with graduated payments will come from paying more in total interest. It can also be difficult to pay for larger installments down the road if your income does not increase as much as you had anticipated.
- With an extended payment plan, you can also reduce monthly payments and extend the loan duration for up to 30 years. Once more, compared to a regular payment plan, you will pay extra interest.
- On some federal loans, there is an income-based plan available. The loan payments are determined by your disposable income, and they are usually intended for debtors with large loan balances.
Find out if it Pays to Consolidate
Consolidating your student loans is taking out a single, big loan to pay down all of your current obligations. You can determine if it’s the proper decision by asking yourself these simple questions.
- Is there a payment up front? In most cases, you shouldn’t need to provide any cash in order to be eligible for a consolidation loan. (Some Stafford or PLUS loans may have fees; however, these will be subtracted from the amount you are given.)
What specifics are included in the new loan?
The weighted average of all the interest rates on your current loans, rounded to the closest 1/8 of a percent, is the interest rate for a consolidation loan. In other words, the aggregated rate ought to fall between the highest and lowest rates you presently pay. To find out if consolidation might be a better option for you, find out what a change would entail for your monthly payments and your overall loan balance.
Your monthly payment amount will be lower if the loan term for a consolidated loan is longer—let’s say 15 or 30 years instead of 10 years.
- Your monthly payment amount will be lower if the loan term for a consolidated loan is longer—let’s say 15 or 30 years instead of 10 years. If you could benefit from reduced payments now, this would make sense, but you think that your income will increase in the future and you might be able to pay off the loan earlier. You will eventually pay more interest, therefore it’s important to think carefully before extending the loan period.
- Are there valid justifications for private loan consolidation? Since private loans, which come from banks or other lenders instead of government programs, usually have higher interest rates than federal loans, you should consolidate them individually from one another to reduce the weighted average you have to
Take Steps to Remedy a Default
If you do not make student loan payments for 270 days or more, the loan may be declared in default. As a result, you may be obliged to return the entire balance immediately, or your paycheck may be garnished to settle the debt, among other potential repercussions. If you are having difficulty making payments, you can take the following steps to avoid default:
- Paying down past-due debt.
- Changing your repayment plan to reduce your monthly payments.
- Seeking a deferment that will allow you to temporarily suspend payments.
- I’m requesting loan forgiveness.
Contacting the lender and negotiating a repayment plan or other settlement, or loan consolidation, may be able to remedy the default.