Student Loan Repayment
Loan Repayment:
Loan repayment can seem like a daunting and stressful situation, but it doesn't have to be. It also does not mean that you will have to spend the next 10 to 20 years not buying anything for yourself or not having any fun. If you have worked through this module, you have come to see that the student loan process begins even before you step foot on campus and that with knowledge and good decision-making, you will be able to manage the repayment once the time comes. If you borrowed federal loans, that time will come 6 months after graduation or if you fall below half-time status. If you borrowed private loans, that repayment period can start at any time and is determined by the institution issuing the loan.
For federal loans, you will automatically be enrolled in the Standard Repayment Plan. This plan has you making 120 equal payments over a 10 year period. If you can afford the payments on this plan, it is the most beneficial because you will pay the lowest amount of interest. If, for some reason, you can not afford the payments while on the standard repayment plan, the federal government allows for 8 other repayment plans based on your personal financial situation. A description of the plans can be found here: StudentAid.gov Repayment plans Links to an external site.. Be aware, however, that with each plan, the timeline for repayment changes, which will impact the total amount of interest you will have to pay over the life of the loan. Another benefit of the federal loan system is that you are able to change plans as often as you need based on your financial situation and your income. This is a potentially huge benefit for many borrowers. Be sure to contact your specific loan servicer with any questions or concerns before you switch repayment plans.
One of the ways to successfully navigate your student loan repayment is to plan and budget for them far in advance. Just as it is recommended that you have an emergency fund with a couple of months of expenses on hand, it is also advisable to open up a separate savings account and try to fund it with about two or three months of loan payments before repayment begins. Then once you set up your repayment plan, you can link your payments to auto-draft from the account that already has a bit of a cushion in it. Not only will this help you in the event that you have an unforeseen month of financial hardship, but your lender/servicer may even give you a reduction in your interest rate for setting up automatic payments.
Ultimately, the loan repayment process begins the moment you accept a loan. Be sure to make a plan and stick to it. Always be sure to keep your information up to date with your servicer so that you do not lose any important paperwork. Create a budget as soon as your graduate, and be sure to include your loan payment even though you may not have to begin paying for six months. Never miss or make a payment late, as this will be reflected on your credit report and could hurt you financially for years to come. Research and learn about any potential loan forgiveness programs that you may be eligible for.
Rule of Thumb! Get Federal Loans First - Then Private Loans
* Disclaimer: Information provided in this section does not reflect all possible provisions and options of federal or private student loans. Be sure to work with your servicer on specific terms and conditions of your loans.
Learning Checkpoint:
Optional Activity: Use the federal student loan simulator to see what your repayment might look like: Student Loan Simulator Links to an external site.
[Chapter 1]: Introduction to Student Loans
[Chapter 2]: Federal vs. Private Loans
[Chapter 3]: Terminology and Resources
[Chapter 4]: Being a Responsible Borrower
[Chapter 5]: Student Loan Repayment