Drawing out a student loan to cover educational expenses is as simple as posting a picture on social networking sites today. However, for some students monthly repayments against student loans can prove to be a financial burden indeed.
Usually, post graduation students get six month grace period before they start repaying their student loans to the lender. But, before you start making the monthly payments, it is necessary to explore all the repayment options available today. If incase your loan is in repayment stage, and you are finding difficulty repaying the balance loan amount, then you may ask to the lender to change your repayment plan where you need to pay less monthly payments.
What is Student Loan Repayment?
Once your graduation is completed, you start with the task of repaying the borrowed student loan to the lender, after the grace period is over. This process is called as entering the repayment phase. But, the federal student loans are quite flexible compared to other private student loans, in regards to monthly repayments and length of repayment schedule.
When Repayments Begin?
Well, after six months of your graduation you enter into the repayment phase. The lender however never expect from you to start paying just after completing the graduation. Therefore, a grace period of six month is offered to each student who borrows student loan. But, students who have bowered Perkins Loans get around 9 months of grace period after their graduation and before entering the repayment phase.
How Repayment Works
The lenders of student loans set up a 10 year of repayment schedule, depending upon the loan amount borrowed by the student. However, you need to keep in mind that the lenders start collecting the monthly installments against the student loan after 6-9 months post graduation. Unless the student consolidates their student loan amount, they may need to make several separate repayments up to 10 years.
Below are the most common student loan repayment options available today. But, borrowers must check with the lenders to explore the additional repayment options or to make changes in their repayment plans.
Under this repayment plan, the students need to repay a fixed amount against the loan till the loan is over. However, if the loan has changeable interest rate, then the repayment amount against the loan may fall and rise, depending upon the changes in interest rate.
Graduated Repayment option basically enables the students to make lower repayments in the early phase of the repayment schedule. However, the repayments are likely to increase over the life of the loan. There are some graduated repayment plans available where the students only need to make interest-only payments in first 4 years of repayment phase, while in other plans the repayment amount increases by certain amount each year. The period of repaying the loan amount would be the same as other loan repayment plans.
As the name suggest, extended repayment option basically elongate your repayment time, thus the monthly payments will be lowered down significantly. The monthly payment will remain fixed throughout the life of the loan. But, the students need to pay extra interest rate for the additional years under this repayment plan.
Income Contingent Repayment
Income Contingent Repayment plan is totally based on the income of the student after their graduation. If the income of the student is low, then the monthly payments would be low, depending upon the money earned each month. Similarly, if the income is higher, then the monthly payment against the loan would also be higher.
With the use of forbearance, borrowers can reduce the monthly payment amount, extend their repayment period and even stop making monthly payment temporarily. But, the students need to have valid reason for the same. They also need to provide valid documentation to support their reason while submitting a forbearance application to the lender. But, students need to pay the interest rate to the lender during the period when their loan is in forbearance. If any interest is skipped or unpaid, then it will be capitalized and added to the total balance of the loan at the end of the forbearance period.
Deferment enables the borrowers to postpone their monthly payment for a certain period of time, depending upon the circumstances. Students may defer their student loans under following situations:
-If the student joined the school after the half session
-If the student is dedicatedly seeking, but still not finding suitable employment
-If the student has economic hardship
Alike forbearance, students are still liable for paying the interest amount against the loan till the time deferment is over.