When you borrow student loans to pay for your college education, you typically don’t have to worry about them while you’re in school. But, once you graduate or drop below half-time, your lenders will start contacting you so you can begin paying back your loans. Most student loans give you a six-month grace period after graduation. That gives you time to get a job and organize your loan payments.
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How Much Do You Owe?
The first thing you need to figure out is how much you owe and who you owe it to. Your lenders have probably been sending statements and notices since you took on the loan. Start by looking through your mail to locate these statements. You might contact your school’s financial aid office for a record of the loans that came through on your behalf. Finally, you can check your credit report to see which loans have been listed. Make sure your lenders have the most recent contact information for you. That way you receive all your billing statements on time and reduce the risk of missing student loan payments.
Federal Loans vs. Private Loans
You might have federal student loans from the U.S. government, or you could have private student loans from a bank. The federal government sets the interest rates for federal student loans. On the other hand, individual banks set the interest rates for their loans, so private loans tend to have higher interest rates. Private loans require a credit check and sometimes a co-signer if the applicant doesn’t meet the minimum credit and income requirements. Even though private loans are more expensive and harder to obtain, some students have to take out private loans because of the annual limits on federal student loans.
Make Timely Student Loan Payments
It’s important that you pay your student loans on time. Since your payment history is reported to the three national credit bureaus – Equifax, Experian, and TransUnion, late payments could affect your ability to borrow additional student loans to continue your education. Not only that, late student loan payments could keep you from taking out credit cards or loans, from getting utility services established, and even from getting a job.
Since it’s nearly impossible to bankrupt student loans, you’ll be liable for your student loans until they’ve been completely repaid. After you’ve been late a few times, your student loans will go into default. At that time, your lender can call the entire loan amount due and may even hire a professional debt collection agency to collect the loan from you. Your lender could sue you and, with the court’s permission, garnish your wages. If you have federal student loans, the government may intercept your income tax refunds.
Student Loan Repayment Options
Student loans offer a few repayment options:
Standard repayment is what you’ll pay if you don’t choose any other payment options. Depending on your original loan agreement, your debt would be repaid between 10 and 20 years.
Graduated repayment allows you to make smaller payments in the beginning of your loan repayment period. Then, your payments increase over time.
Income-contingent repayment bases your payments on your income. If your income is low, your payments will also be low. On the other hand, if your income is high, your payments will also be high.
Extended repayment lengthens your repayment period up to 30 years. This lowers your monthly payment but also increases the amount of interest you pay over the life of the loan.
If you have trouble making payments, you may be able to go on temporary forbearance where your loan payments are reduced or eliminated for a period of time. You are still responsible for making interest payments during the forbearance period. If you don’t, the interest will accrue and be added into your loan amount increasing the amount you owe.
Consolidating Student Loans
You can consolidate multiple student loans by taking out a consolidation loan. The consolidation loan is an entirely new loan that pays off your current loans. The repayment period on a consolidation loan is typically longer which allows you to have lower monthly payments, but also increases the total cost of the loan over time. Unfortunately, you must consolidate federal student loans separately from private student loans.
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Student Loan Forgiveness
Some volunteer positions and jobs offer forgiveness for all or part of your student loans. Here are ways you can have student loans forgiven:
Volunteer for AmeriCorps full-time for a year and receive $4,725.
Volunteer for VISTA (Volunteers for Service to America) for 1,700 and you’ll receive $4,725.
Volunteer for the Peace Corps and get student loan deferment while you’re in service. After your assignment, you can have up to 70% of your loans forgiven.
The Army or National Guard will contribute up to $10,000 toward your student loans if you sign up after you graduate.
Certain types of teachers can have their student loans completely forgiven. You must teach under one of the following circumstances: teaching special education, teaching in a school with kids from low-income families, or teach in an area with a teacher shortage. Talk to your school’s board of education to find out if you qualify for student loan forgiveness.
Paying back student loans isn’t the most desirable way to spend your money, but it is part of the cost of attending college. Stay in front of your student loans to ensure you don’t ruin your credit.
You might have federal student loans from the U.S. government, or you could have private student loans from a bank. The federal government sets the interest rates for federal student loans. On the other hand, individual banks set the interest rates for their loans, so private loans tend to have higher interest rates. Private loans require a credit check and sometimes a co-signer if the applicant doesn’t meet the minimum credit and income requirements. Even though private loans are more expensive and harder to obtain, some students have to take out private loans because of the annual limits on federal student loans.
Standard repayment is what you’ll pay if you don’t choose any other payment options. Depending on your original loan agreement, your debt would be repaid between 10 and 20 years.