Understanding Loan Repayment Options

Student loans are significant financial obligations that should be taken very seriously.   Failing to make payments on time or defaulting on your student loans can have dire consequences such as severely damaging your credit or even having your wages garnished.  Taking the time now to understand exactly how much you will owe when you leave school and what your repayment options are will help ease your mind and set you on a financially responsible path. One of the most important steps in getting ready to repay your student loans, is to get organized.  Keep all of your paperwork for each loan you have taken out, whether in hard copy or online, in labeled folders for easy reference.  If you lost track of your federal loans, you can find out your outstanding balances and your service provider(s) by logging into the National Student Loan Data System. If you require additional assistance, visit your school’s financial aid office. Also keep in mind the following:

  • You are required to repay your loan(s) regardless of whether you complete your education, are able to find employment, or are satisfied with your education.
  • Repayment is required according to the terms of the promissory note(s) you signed when you took out the loans.
  • You are responsible for providing your loan servicer with any corrections to your name, address, references, Social Security number, and driver’s license information.
  • You can prepay all or part of your loan(s) at any time without penalty.

For a quick overview of what to expect with regards to repayment, watch this informative short video. As you will see, there are a number of repayment options available for federal student loans. If you can afford your payments, the standard/level repayment may be your best option. You’ll pay your loan off the fastest and pay the least amount of interest over time. However, if you think you will have difficulty affording your monthly payments, there are several other options available to you, including the Pay As You Earn or PAYE program. The PAYE plan caps your monthly repayment at 10 percent of your discretionary income, which is the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence. The repayment period for PAYE plans is 20 years. Borrowers with loans from graduate school would have to make payments for 25 years.  If any balance remains at the end of the repayment period, that amount is forgiven. This program was recently expanded so that now all federal direct loan borrowers are eligible.  For more information about this program and other repayment options, be sure to visit studentaid.ed.gov. If you have several federal loans, you may wish to consolidate them into one loan.  This way, you will have to only make one payment each month, and the amount of time you have to repay your loan will be extended. There is no application fee to consolidate your federal education loans into a Direct Consolidation Loan. If you are contacted by someone offering to consolidate your loans for a fee, you are not dealing with a U.S. Department of Education (ED) consolidation servicer. For a complete listing of the federal loans that are eligible for consolidation, visit https://studentaid.ed.gov/sa/repay-loans/consolidation. This is important! You never have to pay an upfront or monthly fee to enroll in any of these repayment plans. Student loan debt relief scams can cost you thousands of dollars and drive you further into debt.  Also, although you may select or be assigned a repayment plan when you first begin repaying your student loan after you leave school, you can change repayment plans at any time—for free. It is best to contact loan servicer if you would like to discuss repayment plan options or change your repayment plan. You can get information about all of the federal student loans you have received and find the loan servicer­ for your loans by logging in to My Federal Student Aid. Lastly, if your parents took out a PLUS Loan it cannot be transferred to you through consolidation. If you have private loans, you should check with your lender to find out about your repayment options. Keep in mind that private student loans cannot be consolidated into a federal Direct Consolidation Loan. Unlike federal student loans, there is not a single website that contains information about all of your private student loans. If you are unsure if you have private student loans, request a free credit report at annualcreditreport.com. Private student lenders may report your loans to credit reporting agencies even while you’re still in school or in deferment.  In addition, your financial aid office may be able to assist you in identifying your private loans and your lenders. The Consumer Financial Protection Board has been monitoring the student loan servicing industry and has recently developed a Payback Playbook prototype to help students make more informed choices on getting affordable repayment options.  They are looking for feedback from students, so be sure to visit http://www.consumerfinance.gov/payback-playbook/ and let them know what you think. In addition, they have an online tool to help you optimize how best to pay off your student loans.  You will have to enter some basic information such as the amount of your loans and an estimate of what you think you will earn when you leave school. It offers some good information about your options. Getting prepared to pay back your student loans before you graduate is an important step in becoming a financially capable adult.  Estimate your monthly loans payments and explore repayment options that will work best for your financial situation and allow you to keep up with your payments.

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