As graduation gets closer and closer, many college students begin to experience a mounting anxiety about their student loans. Considering that the average senior’s student loan balance is just under $20,000, most graduates have a legitimate reason to feel stressed!
With that in mind, a quick primer on repaying student loans can go a long way to alleviating one’s worries. In fact, there are numerous options for repaying student loans, all of which make that huge balance feel much more affordable. There are also a number of programs in place to help graduates who are experiencing financial hardships.
Here’s an overview of the different factors you need to understand when it comes to repaying student loans:
Grace Period:
You can generally begin repaying student loans at anytime, even while you are still in school. Many loans however, such as
Stafford and
Perkins Loans, don’t require repayment until a certain amount of time passes from the date you cease to be a “full-time” student. This window of time is called the “grace period.”
Stafford Loans, the most widely held of all student loans, require repayment to begin within six months of graduation or dropping below half-time status. The highly desirable Perkins Loan allow a grace period of nine months.
The PLUS Loan program, as well as many private student loans, require repayment to begin immediately after the loan is originally granted.
Since your school automatically reports your student status to the government, it’s important to use this grace period to make decisions about your student loans as well as finding a job to help pay them off!
Repayment Options:
While Perkins Loans must be repaid in equal payments over ten years, Federal Stafford Loans and PLUS Loans have four different repayment options. If you do not choose your student loan repayment option in a timely manner, you will be placed under the standard payment plan, which requires an equal monthly payment for ten years.
Under the Stafford and PLUS Loan programs, you can also choose an increasing or “graduated” repayment option, an income-contingent repayment option, or an extended payment plan lasting up to 25 years.
When it comes to private student loans, there are as many repayment options as there are lenders. The unique facets and fine print of each private student loan repayment option need to be examined closely.
Loan Forgiveness:
There are numerous programs available to graduates under which the government, a state agency, a non-profit organization, or even a private employer repays some or all of your loan in return for a certain amount of service. These “loan forgiveness” programs are an employment benefit above and beyond your paycheck, and can easily save a graduate tens of thousands of dollars.
Contact your loan program or lender directly to find out if they partner with any employers that offer loan forgiveness or loan cancellations to their employees.
Deferment and Forbearance:
For students who find themselves struggling to repay their student loans, many loan providers offer (but do not guarantee) temporary deferment and forbearance. Deferment and forbearance mean that your repayments are temporarily postponed, and also possibly even reduced in the case of forbearance.
Special paperwork is generally required from your lender in order to receive temporary deferment or forbearance. Make sure you complete the required paperwork before you starting skipping loan payments!
Consolidation:
Last, but certainly not least, is student loan consolidation. At anytime while repaying your student loans, you can consider combining multiple loans into one larger loan. In addition to simplifying your repayment responsibilities, it can also lower your payments significantly. The maximum rate on a Federal consolidation loan is 8.25%, and may be lower depending on the government’s formula and your unique loans.
Most types of Federal student loan programs are eligible for the Federal consolidation program. Private and government loans can also be consolidated at private lenders, but the rates and fine print often leave graduates frustrated.
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