Options for Student Loan Repayment
Once you’ve graduated, left school or dropped below half time enrollment status, you’ll have a 6-month grace period before you begin repaying your loans. A grace period is simply the duration of time that lapses from your graduation or termination of school to the time you are required to begin your payments. Before you start making your payments, it’s important to understand the options and terms that you may come across as you repay your loans.
Options
Before your first payment becomes due, you may be sent a disclosure that outlines your options for payment. Those options are as follows:
Standard
This is the default payment option if no other option is chosen. With it, you will be required to pay the same amount ($50 minimum) every month for the entirety of your loan (up to 10 years).
Graduated
This option is geared towards the new graduates who require a smaller initial payment ($25 minimum). However, the payment will steadily increase over the life of the loan. This option allows recent grads to get their careers in motion before taking on a heftier payment down the road. Along with the increasing payment amounts, you’ll also end up paying a little more interest over the life of the loan.
Income Sensitive
Through this option, a borrower's income dictates the amount of the minimum payment due. Regardless of income, the minimum payment must sufficiently cover the amount of the accrued monthly interest.
Choosing the right option for your situation will help you to maximize your finances and help you stay on top of your monthly payments. Should you find yourself in a position where making your monthly payment has become difficult or impossible, it may be possible to be granted forbearance or defer your loan payments.
Deferment
Deferment is a specified amount of time during which no payments are required to be made. During deferment, no interest will be accrued on federally subsidized loans, however interest will still accrue on unsubsidized loans.
Eligible reasons for deferment:
- Currently in school (no time limit)
- Graduate fellowship (no limit)
- Unemployed (36 month max)
- Economic hardship (36 month max)
- Rehabilitation training (no time limit)
You may inquire with your lender if you feel that you require and qualify for deferment of your student loans. Typically lenders require supporting documentation that backs the reason for your request. This documentation must be reviewed before eligibility is established. Eligible loans include Federal Stafford Loans, Federal PLUS and Federal Consolidation Loans.
Forbearance
During times of financial difficulty, it is possible you may also request forbearance. Despite your best efforts, you may simply not be able to make your payments. Through forbearance, you are given temporary reduction or postponement of principal payments. During your forbearance you will still accrue interest. If you choose not to pay the monthly-accrued interest, it will be added to the total amount due.
Forbearance can allow you the financial leniency that is needed to avoid defaulting on your loan, however lenders are not required to grant it. Lenders will review the terms of an individual's loan and their financial hardship to evaluate the possibility of forbearance. You should contact your lender well before you are in danger of defaulting on your loan as the review process may take some time. Also, forbearance is not a guarantee.
Consolidation
A great method of making your loan repayment more manageable is to consolidate your loans. Simply put, you are taking multiple loans and refinancing them into one, more favorable loan. By doing so, you may take advantage of a better rate (if available) and a lower monthly payment. Additionally, you’ll simplify your finances by reducing your payments to a single payment. If you currently have loans that you would like to consolidate you may begin the process by clicking here.
