Repayment of student loans

Repayment of student loans is a serious obligation. These loans are just as real as a house mortgage or a car loan. Most student loans don't require any sort of payment while you're in school, and most have a "grace period" that starts after you stop attending school. Grace periods are usually six to nine months at the most. After your grace period, which, by the way, doesn't apply to Parent PLUS loans, you have to make your monthly student loan repayments. Many people aren't quite clear about what could possibly happen if you don't make your payments. If you choose to not make your student loan repayments, you risk going into what is referred to as default. Default is definitely not a good thing.


Going into default can cause a number of bad things to happen to you and your credit rating. First, the lending company can (and probably will) notify the Credit Bureau and your default status will greatly reduce your credit rating, thus making it very difficult to get another loan. You can also eventually have your student loan repayments taken out of your tax returns and even your monthly wages. If it gets bad enough, the lenders can actually sue you for the money and any penalties, which have accrued.


There's really no reason to let your student loans go into default. There are a number of programs out there that will allow you to consolidate your loans and thus lengthen you loan repayment period. Consolidation can also help to reduce your monthly payments so that you won't have to worry about going into default. Lenders don't want you to go into default anymore than you want to go into default, and most would rather work with you to help you find a repayment schedule that fits your particular situation.


Obviously, if you can afford the monthly payments on your student loan, then it's in your best interest to pay off the debt as soon as possible. Luckily there are some fairly flexible repayment plans available. This can save you thousands of dollars of accrued interest in the long run. Not all of us have that kind of cash flow when we're fresh out of college.


Graduated repayment plans are a great option for effectively extending your grace period. These types of repayment plans allow you to make very low, generally interest only, monthly payments for a set length of time before you have to start making payments on the principle. You can find graduated repayment plans generally in two or four year increments.


Perhaps the most flexible of the student loan repayment plans is so-called income sensitive plans. These plans adjust annually to help your monthly payment fit your monthly income. Income sensitive plans are an extreme solution. They are basically only for those who are in serious danger of going into default. The thing to remember with income sensitive plans is that you continue to accrue interest charges. Your lowered payment may not be covering the interest that you're accruing and this means that you're adding to the principle.


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