Student Loans

 

Chances are, even if you are done with school you are still paying off the debt.  This page will show you the best methods to do so, and help you learn what it means to apply for student loan deferment.  

 

 

Become familiar with your loan.  Know what you are paying-whether federal or private loans, subsidized or unsubsidized, you need to know what you are paying to manage your payments most efficiently.  

 

The two basic types of loans are private and federal.  Private loans are from a bank or other private institution.  Federal loans are from the government.  They are either subsidized, or unsubsidized.  On subsidized loans, the government coverrs the interest over periods of time to help you pay it off.  Unsubsidized loans mean you are responsible for all interest for the entire period of the loan's existence.  

 

Figure out your payment method.  There are 4 basic payment methods.  The default plan is known as the standard repayment plan, where you pay back a fixed dollar amount per month.  It is often cheaper than a graduated repayment plan, where your payments start low and increase over time.  Both of these plans are 10 years long.  However, in a graduated plan, your principal (amount you borrow or still owe, separate from interest) stays larger, which means you will accumulate interest.  You end up paying a larger total at the end of the loan.  Depending on your income, this extra cost may be worth the lower starting rate of the loan.  This brings us to the third payment: paying ahead.  You can pay ahead on any payment plan you have, as long as you have the money (no use in racking up more debt).  This will save you total interest later.  If you cannot afford to pay for any of the above plans, an income-based repayment plan may be an option.  The lender will recalculate your payment every year based off of your income and family size.  This amount will be what you are responsible for, and the government will pay the difference.  You won't gain any interest for the first three years, but after that you will start accumulating it.  Unless you have an unsubsidized loan-in which case you will always amass interest if you are paying less than the monthly payment.  With IBR, your repayment period can go from 10 to 25 years, which of course means more interest if you keep with it the whole time.  

 

Deferment or Forbearance: these are two methods to delay payments on your loans.  Deferment, however, can cost much less than forbearance.  Deferment means you don't make monthly payments, but depending on what type of loan you have different things will happen.  Lets say you have an unsubsidized loan: interest, as always, will accumulate.  Subidized loans have interest, but during this time it would be covered by the government.  You will end up paying more per month, and more total, on the remainder of the loan.  Forbearance is very similar, with two types of forbearance possible.  Discretionary forbearance is something you  have to apply for at your lender, and it is their decision whether or not to grant it for you.  Mandatory forbearance is required by your lender in cases like fiancial hardship, or you are in a teaching position and qualify for teacher loan forgiveness.  You must continue to pay for the loan as your application for mandatory forbearance is being reviewed, or you may become delinquent and default on the loan.  Forbearance means that interest will gather on both subsidized adn unsubsized loans, which is later added back to your capital.  Remember, in both plans, you will have the option of paying interest during a deferment or forbearance period.  Overall, forbearance generally costs more, but may be worth it depending on your circumstances.  You pay more, total, on a loan, however, when you put it on hold either way.  

 

Never miss a payment, unless you are on forbearance or deferment.  This affects your credit score, and will increase the interest rate on the loan.  

 

Paying off loans is a serious, long term project.  Make sure you choose the plan that is right for you.