Student loans: the repayment perspective:
Every spring brings along a lot of excitement for the students who are finishing
their graduation degree, but also arrives with this excitement,
the uncertainties of the future. There are two simultaneous
problems with which the students have to deal, the first one
is to find a good job in the highly competitive job market and
the second one is to get ready for the repayment of their student
loans. Here is some advice on managing the repayment of
Choosing the repayment plan:
A student has several different repayment options to effectively handle the monthly payments for student loans. There are flexible prepayment options like income based and interest only payment plans, which allow the student to alter his monthly payments in accordance with this monthly income. There are also some solutions such as consolidation which allow the student to extend the payment term so as to reduce the monthly payments. Each borrower is surrounded with a unique situation, and based on his needs and financial requirements he can pick up a suitable repayment plan. The recent graduates, who have just made their entry into new jobs, normally look forward to ways in which the monthly payments can be minimized and consolidation might offer a solution to their problems.
Paying back for student loans on time is very critical, and dont let anything stop you from doing that. The first thing to do is to ensure that your lender has your latest contact details so that you do not miss out on those bills. Paying back on time can be very rewarding, as some lenders offer interest rate discounts for timely payments. And remember you can always pay more if you wish to clear off your loans earlier, because there are no prepayment penalties on student loans.
Electronic payments can help you a great deal in ensuring timely payment for
your student loans.
When you sign up for electronic payment, the lender will automatically
withdraw the money directly from your bank account as and when
payments are due. While this ensures that there are no late
payments and no penalties, it also takes away the borrowers
headache of keeping track of monthly payments and signing and
depositing checks. The additional benefit comes in the form
of a good credit standing, because all your payments are made
The most interesting aspect of using automatic debit is that some lenders may extend a discount on the interest rate. Though this discount is just a few percent points but it will make a major difference on your monthly payments and the total cost of borrowing. Many students have been benefited with more than $100.00 reduction in their monthly payments for the Perkins and the Stafford loans by signing up for automatic debit.
Intimating the lender before missing a payment:
Defaults in the student loan repayment leads to serious consequences like dappled credit ratings, wage garnishment and a complete stop over borrowings in the future. Apart from this, recovery of unpaid loan balance through a legal action is also possible. When youre facing a problem in paying back for your student loan application, consult either the Department of education or contact your lender directly.
Usually, your student loans will get the default status only when there has been no payment for more than 270 days, as per the instructions from the department of education. During this time frame the lender will try to recoup his money and in case he is unsuccessful he can use an outside agency for the collection of the money. If something of that sort happens, expect your loan amount to increase by 25 percent, as the costs incurred by the lender for the purpose of collection will get added on to your bill.
All this signifies the importance of getting in touch with your lender or the department of education when youre facing difficulties in paying back for your student loans or else your problems will escalate to an uncontrollable level. Defaulting in student loans is no answer, because under all conditions you have to pay back for the money that you have borrowed and defaulting will just add on more charges and fees to your loan amount.
Taking a break from your payments with deferment or forbearance:
Student loan borrowers have the facility of postponing the repayment with deferment or forbearance. These are any day a better alternative to defaulting on your student loans, because both these facilities grant you a certain time period in which you do not have to make any payments.
Stopping repayment of the loan for a certain period of time is known as deferment, and is generally available in conditions like reenrollment in the school, unemployment and economic adversity. You will have to make a formal request with your lender for deferment which begins with filling out of a deferment form and later proving your eligibility for the deferment, in accordance with the specifications of the Department of Education. Then you want to claim deferment because of economic adversity or unemployment, the loans will be deferred for a maximum of three years. However there is no time limit for deferment cases which are based on reenrollment in a school.
When the financial difficulty that the student is facing is temporary, they can make use of the forbearance option in which the payments can be suspended or reduced for a specified period, under special circumstances.
Under both these options, the amount of interest that accrues over the loan for that period will get added onto your loan balance, and has to be repaid once your payments resume. The subsidize Stafford loans are an exception, as the Federal government takes care of the interest on the student loans in case of deferment.
Lastly, there is so much that you can do to your repayment plan so as to avoid
problems with repayment of your student loans. And definitely
there is no reason to think along the lines of defaulting in
your student loan repayment.
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