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Student Loan Repayment
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Article on Student Loan Repayment
Students taking out loans either federally or privately should be aware of the conditions of repayment prior to accepting a loan. Defaulting on a loan has serious consequences and there are many repayment options designed to make things easier.
When do Repayments Begin?
Typically a student will get a six month grace period after graduating or dropping below half-time enrolment, except for Direct PLUS where payments are required sixty days after the last loan disbursement. The student must ensure that their lender knows that they are now eligible for repayment, otherwise loan privileges may be revoked and the borrower could be considered to have defaulted. Only one grace period is allowed, so any students returning to study are obliged to begin payments immediately after leaving school the second time around.
Federal Student Loan Repayment – Standard Plan
Students wanting to pay a fixed amount each month would opt for the standard repayment plan. The amount payable each month will depend on the principle and interest. Standard repayment may make it easier for a student to manage their finances as they know the set amount being taken regularly. Paying off the loan in ten years means less is being paid overall.
Other Repayment Options
Graduated student loan repayment allows the borrower to make lower payments initially and increase those payments over time, in line with increased income. Initially, payments may simply cover interest with borrowers beginning to pay off the principle in later years. This longer payment period means a higher total amount paid. Another option is student loan repayment where monthly amounts are based on a percentage of the borrower’s (and their spouse’s) gross income and family size if relevant.
Consolidation and Other Options
A student with more than $30,000 debt may extend payment over a 25 year period for some loans. Students should also consider the option of loan consolidation if they have more than one federal student loan, as this may make monthly repayments easier to manage.
Missing a Student Loan Repayment
Missing a payment means that the account is marked as delinquent, the student will be contacted and late fees will be applied and their credit score will be affected once payment is made. If the student still does not make payment then they are considered to have defaulted. The entire loan amount is then due and the lender may sue the borrower, and take automatic payment from the borrower’s employer to pay off the loan. Borrowers will find it difficult to obtain any further credit, may be taken to court, and could have a professional licence denied to them.
With several student loan repayment options the student should be able to avoid defaulting and manage payments successfully. Some loan providers offer a discount to borrowers who set up an electronic payment with them and this can provide an easy way of ensuring the student does not make late payments by mistake. If the borrower anticipates problems repaying they should contact their lender immediately. A solution can then be worked out possibly involving temporary deferral, forbearance or a reduction in payment.
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