About Student Loan Repayment
Pursuing further education and investing in the future is very important for every child. But with the costs of higher education skyrocketing nowadays, many students have to apply for student loans to complete their study. The U.S. Department of Education helps students to finance their college costs through various loan plans. All student loan programs require on-time repayment after graduation.
This is the biggest difference between a student loan and grant or scholarship.
There’s a grace period for certain student loans
This is a period of time before you have to make payments after your graduate, leave school or drop below half-time enrollment. The grace period for Federal Perkins Loans is nine months and you can have six months before you have to begin repayment for a Federal Stafford Loan.
No grace period is available for PLUS Loan borrowers
When the PLUS loan is fully disbursed, the repayment period will begin. Borrowers must make the first payment within 60 days after the final disbursement. For graduate student PLUS Loan borrowers who are enrolled at least half-time, they can request to defer repayment.
When you start to repay your student loans, choose a repayment plan that best fits your financial conditions. Typically, you can select from 10 to 25 years to repay your loan in full. The schedule depends on your repayment plan.
Several most common repayment plans are introduced here:
• Standard Repayment
Most students choose the standard repayment plan. Under the terms of a standard plan, borrowers will pay a fixed amount every month until the loan is paid in full. The minimum monthly payments are $50 and you can have a maximum of 10 years to repay your loans.
• Extended Repayment
If you want to make smaller monthly payments, extended repayment will be a good plan. You can have a repayment period of 25 years. A fixed annual or graduated repayment amount is required during this period. Only when you have more than $30,000 in outstanding FFEL Program loans or have more than $30,000 in outstanding Direct Loans, you can adopt extended repayment for your student loan.
• Graduated Repayment
Borrowers choosing graduated repayment make low payments at first. Your payments increase every two years. You’re allowed to pay back your loan in full up to 10 years. This plan is perfect when your income increases steadily over time.
• Income Contingent Repayment (For Direct Loans Only)
With this plan, Direct Loans borrowers can enjoy more flexibility while paying off the loan debt without causing undue financial hardship. Your monthly payments will be adjusted every year according to your adjusted gross income, family size and the total amount of your Direct Loans. The maximum repayment period is up to 25 years. If you loans are not paid in full after 25 years, the unpaid balance will be discharged.
• Income Based Repayment
This is a new repayment plan for most federal student loans. Under IBR, you can make affordable monthly payments based on your income and family size. When you make payments with this plan for 25 years, any remaining balance of your loan would be cancelled.
A variety of repayment plans offers greater flexibility for borrowers to pay back their loans. It’s very important to make your repayments on time each month. If you fail to make repayments according to your repayment schedule, you might end up in default.
There’re many serious consequences of default on student loan, including:
- You must repay the entire unpaid amount of your student loan immediately if you default.
- Do not have eligibility for loan deferments.
- You’ll not be eligible for other federal student aids and assistances.
- The default will be recorded in your credit history.
You’re not alone if your student loans are coming back to haunt you as they are defaulted. A number of students are defaulting on the student loans for any reason. They don’t even realize the importance of making timely payments and maintaining good credit history.