A student loan is essentially money you borrow with the hope that once you pay it off in your later years, you’ll be paying that cash back on a regular basis. Unlike other kinds of loans, however, student loans do vary a great deal from other kinds of financial loans. However, the whole process of acquiring and repaying a particular student loan really does have a few special features. Read on to find out how you can get the most out of your student loan repayment.
Student loan repayments are normally paid back over the course of a fixed, term. For most loans, this term is usually five years; however, some loans are available that have a longer loan repayment term. The longer you take out the loan for, the more you’ll end up paying back to the lender. So what kind of factors go into determining the length of your student loan repayment term?
First of all, there’s the interest rate. Most loans will offer you a set interest rate, which is often tied to a published market rate. Some lenders, such as commercial banks, offer a variable interest rate at a higher rate than others; and sometimes these variable rates are subject to revision depending on economic conditions. So while the rates on loans may fluctuate from time to time, the amount you’ll end up paying back also does.
Loan repayment terms
Loan repayment terms also include a “start-up” interest rate. Federal loans have a start-up rate, meaning that interest will start off slowly at a lower amount so that you can plan to make your monthly payments over the long run. Private loans on the other hand, start off with much higher interest rates, since they are basically considered “semi-risked.” The idea behind this is that lenders assume that borrowers have a better chance of defaulting than of paying back the loan. This assumption is true, at least in part. Borrowers with poor credit have a much higher chance of defaulting, so bad credit students often find themselves being given extremely high interest rates on their federal and private loans.
Private loans and federal loans
Other things that go into the equation of private loans and federal ones include the number of months you’ll be able to borrow, and how much of a loan you’ll need. The monthly payments on private loans are usually smaller than those on federal ones, but not enough to really consider a difference. On the other hand, you have to look at the total cost of borrowing versus the amount you’ll be repaying after graduation. If you need more money, it’s less expensive to take out more private loans, but if you just need a little extra money right now, then you’ll likely need to borrow more federal money – with better terms. Repayment begins gradually once your loan is paid off, and you’ll probably have to take out another loan for graduate school, which costs even more money. Another thing to consider is that although private loans may be easier to obtain, they’re also more difficult to maintain and manage throughout your whole degree program.
You have two different options for repaying your federal loans: A Direct Loan Repayment Plan (DLR), and a Guaranteed Loan Repayment Plan (GLRP). The former allows you to make monthly payments toward your loan, while the latter requires you to have the funds available in order to repay the loan in full by the end of the program. Federal Direct Loan Repayments is usually the best option for students who plan to finish college on a low-interest loan repayment plan; the government pays all of the interest while you make your payments. The Department of Education does require certain eligibility requirements and a few other conditions, but these are minimal in most cases.
Private Student Loans, on the other hand, are almost entirely based upon interest rates. Most private student loans offer no or very limited flexibility for repayment. If a borrower has good credit or good financial standing, he may be able to get a reasonable interest rate reduction, but it’s very rare that this happens. The bank will charge you full interest rates on the cash you borrowed, so you’ll need to think carefully about whether the lower interest rates you’ll be offered by a private lender are worth the trade off of flexibility for repayment.
Getting federal student loan payment help can be done through many private lender resources. First, if your school offers a deferment option, inquire about the availability of such a program. If you have bad credit or no credit at all, you may not be eligible for a loan deferment. However, if you know that your credit rating is good, a federal deferment may be the best way for you to manage your student loans while in school. Many private lenders don’t offer federal loan payment assistance, so you may want to try looking elsewhere for help.