Responsible Student Loan Repayment

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If scholarships and grants do not cover your college tuition costs, you're not alone. In fact, nearly 70% of college students use either federal or private loans to help pay their way through school.

In 2019, students borrowed on average about $29,000 for a bachelor's degree, according to data from the Institute for College Access & Success.

Student loans are so commonplace that many borrow money without understanding the terms of student loan repayment. Investing in your future can pay off in the long run, but before you make a commitment, do your research to prepare for life after graduating.

Why Use Student Loans?

Before seeking more financial aid, make sure to apply for all grants and scholarships you qualify for. State governments and colleges also offer their own forms of aid. In addition, military families may receive funding. Completing international study can also qualify you for aid.

If these programs do not cover your costs, then you may consider looking into student loans. These loans can also help cover housing and living expenses in addition to tuition.

Note that the amount of financial aid you qualify for initially does not necessarily remain the same throughout your time in school. You could lose financial aid if.

Private Loans Vs. Federal Loans

The government offers federal loans with beneficial terms like fixed interest rates and income-based payment plans. Your eligibility determines the amount of money you can borrow from the government. So, you may find that federal student loans do not cover your tuition costs.

Generally, you should only consider private loans as a secondary option. Their repayment plans are usually more limited. For instance, you can rarely find fixed interest rate plans offered by private lenders. Instead, they usually offer students variable rate plans, which means the amount you owe each month can go up or down.

When borrowing from a private entity, watch out for predatory practices. Even well-known lenders sometimes engage in unethical behavior. For example, they may conceal repayment plan options and withhold information about loan cancelation.

Student Loan Payment Plans

There are four main payment plans that most private lenders offer. Lenders usually prefer that you start making payments on your loan before you graduate. If you are capable of doing so, this is the smartest option. You will end up paying off your loan sooner and saving money in interest fees in the long run. If you cannot start making large payments immediately, you can pay just the amount of interest that accrues on your loan every month. This prevents your loan balance from growing. But once you graduate, the amount you owe will have remained the same. Lenders may also offer a fixed monthly payment that you can make while still in school. If your agreed-upon payment amount is not enough to cover the interest, your balance will continue to grow. But your balance will not grow as quickly as it would if you were not paying anything toward your loan. This plan lets you delay repaying your student loans until after you've graduated. Choosing this option will cost you more in the long-run, as interest will accumulate while you attend school. There are three main types of federal student loan plans that apply while you're still in school. With direct subsidized loans, the government pays your interest while you're still in school. Both graduate and undergraduate students can qualify. Your school determines the amount you qualify for based on your financial situation. If you cannot get a direct subsidized loan, you may qualify for direct unsubsidized loans. They do not require you to demonstrate financial need. However, you pay all the interest yourself. (You can choose not to make payments while you are in school, but you will have to pay all the interest that has accrued after you graduate.) These unsubsidized loans, available to dependent students and graduate or professional students, help pay for education-related expenses that other forms of financial aid will not cover. (The term "parent PLUS loan" describes a Direct Plus loan taken out by a student's parent.) Similar to direct unsubsidized loans, interest applies for all periods.

Federal Student Loan Repayment Plans

The U.S. Department of Education (ED) gives various options for repaying loans after graduation. Everyone's financial situation is different. So, you may find that the most popular or common plan does not work best for your particular situation.

With this plan, you'll pay the least in total. Its fixed payments ensure you will pay off your loan within 10 years. You can use this plan for direct subsidized loans, unsubsidized loans, and all PLUS loans. You can also use this plan for subsidized and unsubsidized federal Stafford loans and all consolidation loans (direct or FFEL). On this plan, payments start out lower and then increase as you make more money. You will still pay off your loan within 10 years under this plan. However, you'll end up paying more in total than under the standard plan. You can use this plan to pay off direct subsidized loans, unsubsidized loans, and all PLUS loans. Subsidized and unsubsidized federal Stafford loans and all consolidation loans (direct or FFEL) also qualify. With this plan, you will make smaller payments (either fixed or graduated) to ensure you will pay off your loans within 25 years. Your monthly payments will be lower than under the standard or graduated plan. However, you'll pay more over time. You can use this repayment plan for direct subsidized loans, unsubsidized loans, and all PLUS loans. Subsidized and unsubsidized federal Stafford loans and all consolidation loans (direct or FFEL) also qualify. Direct loan borrowers must have more than $30,000 in outstanding direct loans to qualify. Your monthly payments will be either 10%, 15%, or 20% of your discretionary income but never more than you would pay under the standard plan. Payments may change annually based on your current income and family size. You can use this plan for direct subsidized loans, unsubsidized loans, and subsidized and unsubsidized federal Stafford loans. Other qualifying loans include all PLUS loans made to students and consolidation loans (direct or FFEL) that do not include PLUS loans (direct or FFEL) made to parents. To qualify, you need a large amount of debt relative to your income. Your monthly payment will be 20% of your discretionary income or the amount you would pay with a fixed payment over 12 years (whichever is lower). Payments change each year to adjust for your income and other factors. You can use this repayment plan for direct subsidized and unsubsidized loans, direct PLUS loans made to students, direct consolidation loans. Any direct loan borrower with an eligible loan type can use this plan. Your monthly payments will be 10% of your discretionary income but never more than you would pay under the standard plan. Payments change each year based on your updated income and other factors. You can use this plan for direct subsidized and unsubsidized loans, direct PLUS loans made to students, or for direct consolidation loans that do not include PLUS loans (direct or FFEL) made to parents. This repayment plan is only available to those that started college after 2007. Your monthly payments will be 10% of discretionary income. Payments change each year based on your income and other factors. You can use this repayment plan for direct subsidized and unsubsidized loans, direct PLUS loans made to students, and direct consolidation loans that do not include PLUS loans (direct or FFEL) made to parents.

Other Repayment Options

Federal Administrative Forbearance

The government introduced federal student loan forbearance to relieve student loan borrowers during the pandemic. It temporarily suspended loan payments and interest accumulation and paused collection on defaulted loans. The program will continue until January 31, 2022. Once the payment suspension ends, you'll receive a billing statement at least 21 days before your next payment due date.

Using Student Loans Responsibly

If you took out a federal loan, ED requires you to complete a 20-30 minute exit counseling course upon graduation. The course contains information about student loan repayment options. But you can also access the ED'sloan simulator toolto see which option makes the most financial sense for you.

The average student loan payment is $393 per month, according to data from the Federal Reserve. When it comes time to start making payments, most people choose to schedule automatic monthly withdrawals from their checking or savings accounts. You can also make a payment by postal mail.

You cannot use a credit card to make direct payments to federal student loans. But you can use payment services like Plastiq, which charges a transaction fee. Private student loan companies let you pay student loans with a credit card, but they may also charge a transaction fee.

The Dangers of Misusing Student Loans

If you consistently pay back your student loans, you can build a good credit score over the life of your loan. However, if you consistently pay late, it could damage your credit score.

If you're struggling to pay back your student loans, you may be tempted to file for bankruptcy. However, this will stay on your credit report for up to 10 years. Bankruptcy can make you unattractive to creditors if you ever need to borrow money again. You should view bankruptcy as a last resort.

If you cannot make payments due to the loss of a job or a major life event, you can turn to other options. By changing your payment plan or temporarily deferring payments, you can buy yourself some time. You will still rack up interest, but it will prevent damage to your credit score.

Student Loans for College Students

Learn more about student loan repayment and financial aid.

Student Loans for College Students

Learn more about student loan repayment and financial aid.

AffordableCollegesOnline.org is an advertising-supported site. Featured or trusted partner programs and all school search, finder, or match results are for schools that compensate us. This compensation does not influence our school rankings, resource guides, or other editorially-independent information published on this site.

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