Student loan has become one of the most demanded commodity today. Whether you are about to graduate, take a break, or enroll in a college program, student loan can cater to all your monetary requirements, riding you from financial hectic. However, like every loan type, you have to pay back student loan.
Having said, we will highlight all the tips you need to know when opting for student loan, so that you keep up with payments, maintain a healthy credit score, and keep yourself from becoming default. Below are tips you should consider when getting a student loan:
Understand About Student Loan
It is essential that you keep a track of balance, repayment amount, and your lender for a student loan. In case, you are not sure about something, then visit the state’s website for student loan. The government’s website will provide you with information about loan amount, remaining payment, lender, and more about federal loans. In case you do not see information about some of your loans, then they may belong to private lenders i.e. non-federal loans.
For private loans, you can look for their bill statement or the original papers that you had signed at the time of applying. In addition, you can contact your school to if you are not able to find any information about a private loan.
In case you find hurdle in paying back loan due to unemployment, severe health condition, or financial crises, then you should remember that various options could come into handy when paying Federal loans. Having said, you can learn about forbearance and deferments as they can help you at times when you are dealing with financial hardships due to any reason.
However, you should remember that interest applies to all loans during forbearance period, and some loans can even add more to total debt during deferment. Thus, you can inquire lender for making interest-only payments. In addition, if you think that you will possibly earn less than what you had expected for some time, then Income-Driven Repayment Plan or IDR can come into handy to you.
Keep in Touch with Lender
Make sure you keep your lender updated at all times. Whether you move, change email address or contact number, inform your lender. In case a lender tries to reach you, but fails, then it can cost you a lot. Never turn a blind eye to mails or electronic content from your lenders. If you happen to receive unwanted calls from lender, never ignore them – have conversation with them.
Lenders tend to work with borrowers to resolve various issues regarding collection. Moreover, debt collectors must follow specific rules. Ignoring bills can make you a default, leading to long-term consequences.
Keep Yourself Out of Trouble
Ignoring to pay back student loan can put you in severe consequences that can frustrating. Ignoring a Federal loan can make you a default if you fail to pay for at least nine months. The moment you default, the total loan balance becomes due, ruining your overall credit score significantly. This will in turn increase the total amount due, making the government seize your tax return or garnish your wage.
In case of private loans, default can occur faster and even put your co-signer at risk. You can communicate with lender if you find yourself becoming default.
Learn About Grace Period
Various loans offer grace periods i.e. duration in which you are not liable to make first payment after leaving school. Grace period can range from six to nine months depending on type of a loan. In case of Federal Plus loans, you can access six-month deferment.
Make Advance Payments
In case you can afford to pay more than a monthly payment amount, then make payment in advance. This can reduce the amount of interest on a loan significantly. Moreover, you can pay back you loan sooner by informing your lender and identifying if there is a fee for advance payment. In addition, prepayments can be credited automatically, riding you from billing in the upcoming months.
Pay Off Expensive Loan First
In case you are looking to pay off a loan ahead of a schedule, then you can begin with one that has highest interest rate. For those who have private and Federal loans at the same time, they can start with paying back private loans as they have more interest rate and lack of flexible payment methods.
Various programs can forgive almost all or specific Federal loans if you happen to work with particular employers. Some Federal programs such as Service Loan Forgiveness forgives a student debt remaining after 10 years of successful payments specifically for employees of nonprofit, government, and some private firms. Moreover, nurses, teachers, and professionals working at state departments can discover if they are eligible for loan forgiveness.
Choosing the Right Repayment Option
The moment your Federal loans become due, your payments will be based automatically on a 10-year repayment plan when you do not choose a different plan. If you find it difficult to pay standard payment, then other options can come into handy. You can change plans if you want.
Increasing your repayment period for more than 10 years can reduce monthly payments.
However, you will pay more interest in this way. The Forgiveness option is applicable after 10 years of payment only for individuals working in either nonprofit or public sectors.