If you are nearing the end of your college run, student loan repayment is right around the corner. It’s important to know your repayment options before your loan grace period ends to avoid financial consequences.
Ways to Repay Student Loans
You’ve made a serious investment in your education. Make sure you research and choose the best student loan repayment option for your situation. Here are a few ways to repay student loans.
Student Loan Debt Consolidation
One popular option is student loan debt consolidation. Consolidation takes all the loans and creates one new loan, with a simpler repayment plan. Borrowers with loans from multiple sources or several loans from one lender might consider consolidation.
Student loan debt consolidation may or may not reduce your interest rate. You will typically also have a longer repayment schedule which means paying more interest over time. While one payment is nice, do the math before consolidating to make sure it’s the best option for your loans.
Graduated Student Loan Repayment
Graduated loan repayment is available for subsidized and unsubsidized Direct and Stafford loans as well as all PLUS loans. Payments are not fixed, and they start at a lower number. Every two years, the payment increases.
Over time, you will eventually pay more for the loan than under the 10-year standard plan. However, if you are starting off in an entry-level job with a lower income, but expect your income to increase steadily, this student loan repayment option might be the right choice.
Income Sensitive Repayment Plan
Most federal loans qualify for the income sensitive repayment plan. The repayment schedule is based on your annual income, and the payments change as your income changes. This spans a 10-year period.
Every lender has a different formula to determine the monthly payment amount, and you will end up paying more for the loan over time than under the 10-year standard student loan debt repayment plan.
Avoid Defaulting on Student Loans
Borrowers can face serious consequences if they default on student loans. Here are a few things that could happen as a result:
- Your credit will be damaged.
- Your loan balance will increase dramatically as collection fees of up to 18-25% of loan balance are added.
- The IRS can intercept any income tax refund you may be entitled to until your student loans are paid in full.
- The government and private lenders can sue you to collect defaulted student loans. Unlike other debts, there is no time limit on suing to collect student loans; you can be sued indefinitely!
These are just a few of the student loan repayment options. There are also student loan forgiveness programs to consider. As you graduate from college and move through your career, continue to evaluate your debt repayment needs.
To speak to a credit counselor today about student loans, budgeting and managing your finances, call 800-769-3571.