STUDENT LOANS: LOAN REPAYMENT
Students, soon after your graduation, you need to enter the repayment phase. In other words, you have to start paying off your student loans. This term is used by lenders, which refers to the process of repaying the money loaned to a student borrower. These loan servicers paid for a student’s schooling, specifically tuition fee and other expenses, in the form of money deposited in your student accounts at their university or college, normally done per semester.
Just like mortgages or car loans, student loans are real loans, which must be settled regardless of one’s current financial circumstances. Good thing these loans are extremely flexible when it comes to determining monthly payment amounts and the length of repayment schedule.
Let this tutorial guide you through the student loan repayment phase.
Start of Loan Repayment. The US government sets a six-month grace period before a student enters the repayment phase. Borrowers of federal perkins loan get nine months. Hence, they won’t expect you to pay back your loans right after you get your first job.
Loan Repayment Method. Every lender provides a loan repayment schedule, normally a 10-year repayment schedule. Loan servicers outline the deadline for first payment, the number and frequency of payments, and the amount every payment. However, bear in mind you may owe amounts to other lenders. You may make several separate payments for 10 years unless you consolidate these loans.
While the government backs all federal loans and most of the same contract terms, regardless who the loan provider is, direct loans come from the government, They also offer additional repayment options to the standard repayment plans given by all lenders.
The following are the available repayment schedules:
- Standard Repayment – The basic financial aid plan with a fixed payment for 10 years, it pays less interest for a student loan over time.
- Graduated Repayment – Available for both consolidated and standard repayments, payments will be lower at first, and then it escalates every two years. But the payments will never exceed 1.5 times the standard plan.
- Extended Repayment Plan – Monthly payments would be lesser than the standard plan. For Direct Loan borrowers, they must have more than $30,00 in outstanding Direct Loans; and for FFEL borrowers, more than $30,000 in outstanding FFEL Program loans. A borrower must also be classified as a new borrower as of October 7, 1998, and pay more than the loan over time.
- Income-Contingent Repayment Programs – Especially in public service, there are programs available for graduates who pursue careers if income is not sufficient to cover standard loan repayments. Although such loans are offered only by direct loans, these are also made available by private lenders who offer federal student loans. Income-based payments are also available from both direct and private creditors. Even though similar to income-contingent repayment, this repayment employs a different formula.
Let’s look at income-contingent repayment. This government program is designed to aid students who endure hardship in paying. The payment is either lower than 20% of the monthly discretionary income in each payment or spreads out over 12 years. The maximum repayment period is 25 years. In case the payments do not erase your loans after 25 years, the unpaid portion will be forgiven. However, one must have to pay income tax on the discharged amount.
Match your repayment plans based on your salary, financial situation, and other factors. Consider all your repayment options. If needed, get advice from family members, your college’s financial aid counselor, and friends. Remember, any decision related to student loan repayment will affect your financial goals.
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