student loan repayment

Did you know that special programs and options exist for student loan repayment? Here is what you should know about paying back your student loans.

Options for Repayment
After you graduate, leave school, or drop below half-time enrollment, you usually get a six-month grace period on federal student loans before you have to start repayment. You will receive information about repayment and will be notified by your loan provider of the date loan repayment begins. Be sure to ask your lender for a repayment plan. The following are a variety of repayment options that you can choose from:

• Standard Repayment Plan. This option allows you to pay off your debt within 10 years, and the monthly installment amount remains the same over the life of the loan. The standard repayment plan is automatically established for all of your loans unless you choose one of the other options. This payment schedule is great for someone who has a steady monthly income and can afford the payments.
• Graduated Repayment Plan. This plan gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years. The monthly payment amount will be no less than the monthly interest payment, and the overall interest will accrue over the life of the loan. The graduated repayment plan is great for someone who expects to have steady wage increases.
• Income Sensitive Repayment Plan. This plan is similar to the graduated schedule in that the payments are lower in the beginning and will increase as your income increases. However, the income sensitive plan ties the monthly payment to a percentage of the borrower's monthly income. So, your monthly payment bill will be proportional to the amount you are currently making, and you'll get up to 15 years to pay it all off.
• Extended Repayment Plan. With this schedule, you will be allowed to pay the least possible amount per month for 10 to 25 years. The length of your repayment period will depend on the total amount you owe when your loans go into repayment. However, you may pay more in interest because you're taking longer to repay the loans.

Repayment Trouble
Sometimes people are under circumstances in which they cannot make their loan payments. Maybe you can't find a job. Maybe you have been injured and can't work for a while. If you find yourself under such circumstances, don't be afraid to ask your lender what options they have available. You may be eligible for the following:

• Deferment. This is a period of time during repayment in which the borrower, upon meeting certain conditions, is not required to make payments of loan principal. Through deferment you can postpone your scheduled student loan payments for various reasons, such as unemployment, economic hardship, and student enrollment. Deferments can only be offered to individuals in grace period or after. Your lender or servicer determines if you meet the requirements for deferment.
• Forbearance. This is an option that permits the reduction of payments, an extension of time, or the temporary cessation of payments. It is mainly used for default prevention. If you do not meet the requirements for a deferment, you might qualify for forbearance.

Definitions
Financial aid jargon can be difficult to comprehend at times. Here are some more terms you should know before you start paying back your student loans:

• Principal. This is the loan amount that you originally borrow.
• Interest. This is a percentage of your outstanding principal loan amount charged for the use of borrowed money.
• Lender. A lender provides the funds for your student loan.
• Servicer. A servicer processes student loans for lenders or secondary markets. This includes billing, processing and collecting your student loan payments, changing your repayment plan, and applying deferments and forbearances to suspend your loan payments.
• Default. Default is falling behind on your scheduled payments over an extended period of time. Being in default means that you have violated your loan agreement, and the lender or servicer can request immediate payment in full.
• Prepayment. All Federally sponsored loans and most private loans allow you to pay part or all of your obligation before scheduled payments, at any time during the life of the loan without penalty. Prepaying can greatly reduce your total borrowing costs.
• Loan Forgiveness. This is where you have the option to pay off your student loans in the form of service. The government will take care of your debts if you agree to put some time into one or several of the following programs: Volunteering Loan Forgiveness, Law School Loan Forgiveness, Med School Loan Forgiveness, and Occupational or Physical Therapy Education Loan Forgiveness. Check with your state's Department of Higher Education for qualification details.

Before you go overboard on purchases after college, remember that you will need to calculate your student loans into your expenses. Use our student loan repayment calculator to estimate your monthly payment. If you don't repay your loans, you could mess up your credit history for years and lose your ability to borrow money in the future.

Posted: 9/3/2005