Paying Back Student Loans, What to Know

If a student has elected to use loans to help pay for college, then the student should prepare to start paying on these loans after leaving college. While still on campus, the federal government and the college will require the student to complete an online exit counseling session.

The exit interview will provide the student with information on borrower rights and responsibilities, how to manage loan repayment, consequences if a student defaults on the loan, and information on deferment, discharge or forbearance of the loan. If the student fails to complete the exit counseling, the college could prevent the student from graduating or put a hold on the student's transcripts.

After the student leaves school, most government loans allow the individual a grace period, a short period of time before the student must begin repaying the loan. Most federal loans, such as the Stafford loan, have a six month grace period however the federal Perkins loan allows students nine months before the student must repay the loan. The PLUS loans have a shorter grace period and interest starts to accrue 60 days after the first disbursement is made.

Repayment Period

After the grace period, student loan repayment must begin. Most loans allow students to pay their loans early and students usually do have the option of paying months in advance. The monthly payment plan can differ depending on the terms of the loan, interest rates, the amount of money borrowed and the repayment period. Most student loans state that a student must adhere to a payment schedule where a portion of the principal and interest are due monthly throughout the loan repayment period. Other loans are structured so that payments are smaller at the beginning of the loan period and gradually increase. Other loans are structured so that payments fluctuate based on the amount the student earns per month keeping in mind that payments can never be less than the monthly interest. Finally, some loans allow borrowers to repay their loans over an extended period of time. The monthly payment is usually lower but the overall cost the student pays is higher because the individual will pay more interest. For loans such as the Perkins loan the repayment period is 10 years while the repayment period for the Stafford loan is between 10 and 25 years.

If the individual fails to pay the loans based on the established schedule, then the student may be charged late fees. If the individual fails to pay on the loan for an extended period of time, then the loan will go into default which will affect the individual's credit. Default occurs when the student violates the terms and conditions outlined in the promissory note. If the individual has trouble paying back your loan, they should contact the organization that services the loan immediately before they are charged late fees or before your loan goes into default. The loan organization can at times offer options that will provide the individual with temporary relief.

Many individuals may qualify for a deferment, forbearance, or other form of payment relief should loan payments become difficult to pay. A deferment allows students to temporarily suspend their loan payments. If deference is granted, the individual will usually not be required to pay interest on the loan. If forbearance is instead granted, payments on the principal will be suspended but the individual will still have to pay interest on the loan. In rare instances, loans may be canceled and the individual will no longer have to pay on their loan.

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