Student Loan Repayment Options
Student loan repayment options are often more flexible than students think. If you haven’t had much experience in the world of loans and lines of credit, you might not realize that the goal of a lender is to be repaid for the amount of money his company shelled out in the first place, plus applicable interest. When you owe money for your education and you think you might get behind in your payments, you can usually strike a deal with your lender that works for both of you.
In general, bank loans and government loans have the most flexible repayment options, though loans made through schools often have several options from which to choose. The most important thing is that you contact your lender before you default on the loan; when you fail to make a payment, your options narrow considerably.
Standard Student Loan Repayment Option
If you can afford your monthly payments without having to live off soda crackers and water, you’ll be better off in the long run to stick with the standard repayment option that was offered to you. Your monthly expenditure will be higher than if you accept a different option, but you’ll pay off the loan more quickly and will pay out less interest over the long haul. With most government- and bank-issued student loans, the monthly payment is $100 - $150 per month for every $10,000 you borrowed.
Graduated Student Loan Repayment Option
Many students start out with a paltry income upon graduation, but know that based on their job outlook will make more money within three or four years. A graduated repayment program means that you will pay less on your student loan for the first few years after graduation, then more as time progresses. You’ll pay more in interest than with the standard repayment option, but you’ll be able to live comfortably until you get back on your feet.
Extended Student Loan Repayment Option
If you don’t know what your job outlook might be over the next several years, you might be better off with an extended payment program. Under this option, you’ll stretch the length of your loan from ten years to up to twenty-five, which will give you considerably lower payments, but increase the interest you pay by a great deal. In most cases, you have to owe at least $30,000 to qualify for an extended repayment option.
Income-Contingent Student Loan Repayment Option
When students don’t qualify for the extended option, they often opt for an income-based repayment plan, which allows your monthly payments to adjust according to your current income. The adjustments occur annually and are also based on expenses, such as family dependents and continued education. Beware, however, because your spouse’s income is taken into consideration if you are married.
Loan Refinancing & Consolidation
Most students who refinance their loans as a repayment option are looking for lower interest rates, and this can be a beneficial option if your current interest rate isn’t fixed and you have multiple loans. Using this program, you would combine all of your student loans into one lump sum and negotiate a lower interest rate and lower monthly payments on an extended basis.
Deferments & Forbearances
As a last resort, it is possible to get a deferment or forbearance on your student loans, allowing you to catch up financially before meeting your obligations to the loan. With deferments and forbearances, you postpone the payment of your student loan, either with the government covering the interest accrued (deferment) or with the interest continuing to build (forbearance).
Unfortunately, deferments and forbearances can still hurt your credit, especially if you default on your student loan while your application is still pending with the lender. Make sure you explore all options with a financial adviser before making this decision.
There are plenty of options for student loan repayment, but only you can decide which is best for your situation. Talk with your parents and anyone else who can give you sound advice.