Managing Student Loans

Student graduation brings the realization to many that the time is drawing near for student loans, that have provided funding for college days, to be repaid. Serious decisions need to be made concerning the repayment of student loans, as an inappropriate choice can have long term financial consequences. Loans will most likely have been provided either by the federal government or private lenders, and students will be relieved to hear that federal loans taken by parents on their behalf remain the responsibility of the parent.

Students may choose to consolidate their loans to simplify the repayment process if a number of differing loans have been utilized. However, it is vitally important that if this route is considered that any federal student loans are not consolidated with a private lender but kept separate. If federal loans are moved into the private sector, then graduates lose all rights to student loan forbearance, deferment and alternate federal repayment options. Private student loans cannot be consolidated under federal programs. Those considering federal student loan consolidation will find full details here.

The repayment options available with private student loans are entirely dependent upon the policy of the individual lender. Graduates should prioritise paying off private student loans quickly to reduce the principal. It is important to understand that the option of possible deferment at some point will come at a price from some lenders and ultimately increase the size of the debt by additional charges being levied.

The majority of private student loans will have been obtained with the help of a responsible co-signer. Timely repayments will help to release the co-signer from their obligations. Release dates will be dependent on the individual lenders policy, but often co-signers can be released after 36 months providing all payments have been made in accordance with the terms and conditions of the loan.

Federal student loans offer a number of repayment options. However, before graduates consider making their choice it is advisable to investigate the possibility of student loan forgiveness. There are many programs available for graduates willing to enter such professions as teaching, medicine, nursing, social work, veterinary medicine, and law, as public employees. Additionally, there are options open to those considering the Peace Corps or AmeriCorps.

Repayment options for federal student loans, whether as individual loans or consolidated, present a number of choices. Graduates should consider certain things before making a decision. The most sensible route is to repay the loans as quickly as finances allow. This can help to sizeably reduce the total amount repaid as less interest is levied over the term of the loan.

Although it may be tempting to repay as little as possible, graduates should consider that this is the ideal time to make headway to repay the loans aggressively and thus avoid the scenario of still being stuck with student loan repayments later when other financial commitments may take precedence. Such considerations will be dependent upon the type of salary graduates secure.

The federal government offers a number of repayment plans under the Direct Loan Program. Graduates in a position to afford it should opt for the standard repayment plan which will clear the loans in the shortest time scale and reduce the total amount of interest. The standard plan allows graduates up to 10 years to repay loans at a fixed monthly payment of a minimum $50. Graduates who consider this may be a risky option if circumstances change, should be aware that federal student loan forbearance or deferment is available during the program if problems arise and criteria are met.

The second federal option is an extended repayment plan but this is only available to those with a debt load exceeding $30,000. Graduates may repay loans over 25 years, either through a fixed monthly amount or a graduated amount that increases every two years. The obvious disadvantage of this is that the total amount of interest to be repaid will be significantly higher than the accrued amount on a shorter term.

The third option is the income contingent repayment plan. This is best suited to graduates who face an uncertain or low income. Repayments are allowed over a maximum 25 years and monthly payments will be assessed annually based on income. This allows graduates to repay their loans without facing undue financial hardship, and also allows interest to be capitalized so that only the principal is repaid at certain times. After 25 years, if the loans have not been fully repaid, the balance will be discharged by the federal government.

Additionally there is an income based repayment plan available over 10 years that allows for monthly payments to be adjusted during times of financial hardship. It is possible that under certain circumstances the balance of any outstanding loans after 10 years may be cancelled, providing that all the qualifying criteria has been met.

It is never too early to consider student loan repayment options. Although graduation is a typical wake up call to many that student loans will need to be repaid, the best time to consider the various options is when the loans are first applied for. The most astute way to handle student loan repayments is to begin to pay them down whilst still in college, thus reducing the total amount to repay upon graduation.