A high percentage of college students need student financial aid to pay for tuition and books. The unpleasant reality for student loan borrowers is that at some point after leaving school or graduating, repayment begins.
While student loans have helped millions of students achieve the dream of a college education, they are a double-edged sword whose sting comes long after the thrill of graduation is over. Below we’ll look at repayment requirements as a student loan borrower and what options you have for repayment. But first, let’s go over what your last institution is required to do for you. As you approach graduation or shortly thereafter, you will (or should be) notified by your lender or your last school with a description of your federal student loans, or other types of loans, including an estimated monthly payment, the amount of your total indebtedness including interest rate and total interest charges on your loans, contact information for your lender, explanation of any fees associated with your loans should they go into default or litigation or collection, and a reminder of your consolidation options.
Also, you should be notified of your rights to deferment, forbearance and discharge provisions should you ever qualify, advice about debt management and repayment options, your requirement to keep your address current with your lender and provide employer name and address, and to promptly report any change to your basic demographic information including name, social security number and driver’s license number.
When a student loan begins repayment depends on the type of loan you have borrowed. Direct Stafford and FFEL Stafford loans begin repayment after a six-month grace period after you leave school, drop below half time enrollment, or graduate. If your Stafford loan is subsidized, you will not accrue any interest during your grace period. If your Stafford loan is unsubsidized, you will accrue interest during your grace period and while you are in school, but you will not be required to begin repayment until after your grace period ends. The accrued interest becomes “capitalized” or is added onto the original principal loan amount you originally borrowed. Perkins loans begin repayment after a nine-month grace period. All Perkins loans are subsidized during the in-school and nine-month grace period.
Perkins loans have one repayment plan. Borrowers have up to ten years to repay their loan. The borrow makes payment directly to the school that disbursed the Perkins loan originally. There is no penalty for paying off the loan early. FFEL and Direct Stafford loans share four repayment options. All Stafford loans default to the “standard” ten-year repayment plan. Also available upon request are the graduated, extended and income contingent repayment plans. When picking a payment plan, there are two conflicting interests at work. The first is, you need to be mindful of the monthly impact no your budget and select a repayment plan that you can comfortably afford. The other thing to keep in mind is the long-term cost of the loan. The further into the future you stretch out your payments, which can be as long as 25 years, you are committing to pay more interest by the time the loan is paid off. So, your short term need to have lower monthly payments can derail your plans to pay off your loans with expedience. Just keep in mind that each plan has it’s pros and cons; however, you are never locked into a payment plan and can change your plan at anytime by contacting your lender.
Student Loans 