When it comes to repaying student loans, it is important to understand every available option. Most student lenders try to make it easy for recent graduates to handle the repayment of their student loans because they understand what a trying time the period just after graduation can be. The following article contains explanations on the most common options for repayment plans.
Standard repayment refers to the traditional repayment plan which applies to most federal student loans. This plan offers the option of a fixed interest rate, although that means that the monthly amount will stay the same until the loan is paid off completely.
Extended repayment plans give loan recipients the opportunity to extend the repayment period for their loans. The repayment period can be extended to as much as twenty five years. The advantage of this plan is that borrowers receive a lower monthly payment.
In the income sensitive repayment plan, the monthly payment amount is determined by the amount of money the loan recipient makes each month. Borrowers applying for this repayment plan have to show proof of income by submitting the appropriate information, and they have to do so each year they wish to reap the benefits of this plan. One qualification is that, at the very least, the loan’s interest must be covered in the monthly payments.
The graduated repayment plan gives loan recipients the opportunity to initially begin with a low monthly payment. Over the course of the repayment term, the monthly payment amount increases by gradual degrees. In general, the monthly amount gets higher every two years or so. Again, the monthly payment must at least cover the loan’s interest.
There are other ways to modify repayment plans. Many students choose to postpone their payments for a set period of time. For starters, with most loans, students are allowed a six month grace period following their graduation withdrawal from an institution. The grace period also applies if a student has to begin attended school on a part time basis for whatever reason. In the case of subsidized student loans, the federal government takes care of the interest during the grace period. For unsubsidized loans, students either have to pay the interest payments while they are enrolled in school or else they can defer the payments with the understanding that the accrued amount will be applied to the loan principle.
There are also several options for deferment. Deferment is a span of time where students are not responsible for repaying their student loans. When a subsidized student loan is deferred, again, the government covers the cost of the interest. When a student defers an unsubsidized loan, the interest will be accrued and later applied to the total loan amount. Students can receive in-school deferments if they are attending school on a part time basis at the very list. Proof of enrollment is necessary to receive this kind of deferment. In circumstances of financial problems and unemployment, deferment is also possible. This deferment can last for a year at a time but it cannot occur more than three years over the entire life of the loan. Forbearance is also a possibility. It follows the same rules and requirements as deferments, for the most part.