The cost of pursuing further education is increasing each day. Moreover, in present days if you wish to obtain a high paying job, you need to have higher qualification. Hence, keeping this thing in mind, most financial institutions have come up with affordable student loans. As a result, most students opt for student loans to finance their studies.
Thus, if you wish to obtain student loan, you need to be aware of the repayment option too. Repayment option is the most imperative factor, wish you tend to ignore, while applying for loans. The terms of repayment are confusing as well as overwhelming. So, to help you out, here is a complete terminology of student loan repayment.
Understanding the Student Loan Repayment Terms:
Grace period is a time limit, determined by the loan companies, before allotting the loan amount to you. When you complete your education or drop half way before completing the studies, you need to start repaying the loan. Grace periods of student loan varies from one financial institution to other and depends on the student loan type.
For instance, one loan company may offer you with a grace period of 6 months, whereas other may keep the grace period as nine months. However, there are some companies, which do not have grace period at all.
Student Loan repayment consists of another important option called as deferment. Through deferment option, you can temporarily postpone the loan payments. Most companies offer deferment of three years on student loans. If you do not have a job or are facing financial hardships, then opt for loan deferment.
Things to note
After completing studies, if you opt for loan deferment, federal government pays the interest on your student loan. However, if you opt for other types of student loans such as unsubsidized loans, then you will have to pay the interest after the completion of deferment. In the latter case, companies add the accrued interest of deferment period with the principal loan amount.
You will have to pay the accrued interest along with the principal amount. To avoid paying the interest, you may select the option of paying the interest during deferent time and after completion of deferment period, you can pay the remaining amount.
Forbearance gives you the option of postponing your loan repayment for temporary time. Within the forbearance duration, you need to pay all the interest accrued due to non repayment of loan.
Terminology of Repayment Plans:
Extended repayment allows you to extend the loan according to your convenience. If you have any federal loan, which totals more than $30,000, then you can even extend the loan term to 25 years. However, loan companies will consider your loan amount before granting you extended repayment.
In graduated repayment, you need to pay lower loan installments at the start of your repayment tenure and gradually increase the monthly installment sum over time.
Income-sensitive loan repayment
In income sensitive student loan repayment, loan companies will consider your monthly salary and fix the monthly student loan installment. However, you will have to submit the credentials and your income proof to become eligible for this type of repayment option.