By: Yara Zakharia, Esq.
While applying for a student loan is a simple procedure, the student loan repayment process often stirs up much confusion and financial worries for borrowers. To help students understand the student loan repayment steps, the U.S. government requires that they take part in exit loan counseling prior to leaving the university.
Approximately 30 days before a student's loan payment is due, the holder of his/her loan or loan provider mails him a repayment schedule. The student loan repayment schedule sets forth the total balance of the loan, the interest rate, amount, and due dates of the monthly payments as well as the loan provider's address to which the student must send his/her payments.
What follows is a brief overview of the student loan repayment process:
1) Repayment period:
Student loan repayment of most subsidized and unsubsidized Stafford loans- federal (FFEL) or direct- commences six months after the borrower's graduation or cessation of at least half-time enrollment. The grace period for a Federal (FFEL) or Direct Stafford Loan is six months, whereas for Federal Perkins loans, it is nine months.
2) Repayment options:
Many loans offer borrowers a choice among different student loan repayment options. Students should choose the one that best suits their individual needs. The amount of the debt and the length of the student loan repayment period will determine the monthly payment.
The four student loan repayment options available to students are as follows:
- Standard student loan repayment or level payment plans: The borrower pays a fixed monthly amount (principal and interest) throughout the repayment term.
- Extended student loan repayment: The borrower receives a lengthened repayment period of up to 25 years.
- Income contingent or income-sensitive student loan repayment: The borrower's monthly loan payment is based on a percentage of his/her monthly gross income and is adjusted annually.
- Graduated student loan repayment: The borrower makes smaller monthly payments during the first few years; payments then increase gradually until the loan is paid off.
The U.S. government pays the interest on a borrower's Stafford or Direct loan while the student attends college at least half-time and during the six-month grace period. However, it does not pay interest on a borrower's Unsubsidized Stafford or Direct Loan, which starts to accrue once the student receives the loan. The borrower can either pay the interest quarterly or have it added to the loan principal when signing the loan's Master Promissory Note.
A student loan repayment calculator enables the borrower to obtain an estimate of the amount of his monthly loan payments and the yearly salary needed to make them. The student loan repayment calculator can be utilized with private student loans and Federal Education Loans (Perkins, PLUS, Stafford). It assumes that the interest rate will remain the same throughout the loan's term. The student loan repayment calculator also assumes that equal monthly payments through standard or extended loan repayment will be made to pay off the loan. In the case of graduated or income-contingent student loan repayment, accurate results are not possible.
Finally, although borrowers may find student loan repayment to be burdensome and intimidating, communication with the lender and careful planning after school will ensure a smooth transition to repayment.
