There are many students all over the world who dread the thought of repaying their student loans once they have graduated and/or exhausted their six month grace period. One of the many obstacles that graduates’ face is finding a well-paid job within their degree so that they can afford to make these payments. Once they find a job, it may be a little disconcerting to know some of their hard earned money has already been accounted for because their student loan payment will be there waiting for them. However, there are a few options that students can take advantage of before and after they go into repayment.
Making small payments while in school is very beneficial in reducing student loan payments. Borrowers who make partial monthly payments during the in-school deferment will save a lot of money over the life of the loan as compared with borrowers who do not make any payments (Kantrowitz, 2013). Ideally borrowers should make payments of at least the new interest that accumulates each month during the in-school and grace periods (Kantrowitz, 2013).
Although interest-only payments are not as good as making full payments of principal and interest, interest-only payments are better than deferring payments of both the principal and interest (Kantrowitz, 2013). Payments that are at least the new interest that accrues will prevent the loan balance from getting bigger (Kantrowitz, 2013). There are no prepayment penalties on federal and private student loans, so you can make interest-only payments during the in-school deferment and grace periods on any student loan, even if the lender does not require in-school payments or have a formal interest-only payment option (Kantrowitz, 2013).
[see also: Student Loan Repayment…What’s Your Number?]
There are also repayment options for those who are unable to make early payments. Most students repay their loans using the standard repayment plan. This calls for regular monthly payments over a 10-year period. There are repayment options for borrowers who are unable to use the standard repayment plan. Some examples of repayment options for Federal Direct Student loans include:
- Extended repayment: If you qualify for this payment plan, you can extend your repayment period for up to 25 years.
- Graduated repayment: Under this plan, your payments gradually increase, usually every two years.
- Income-based repayment: This option ties your repayment amount to your income. It often allows for a longer repayment period.
At American Public University, the Financial Aid Services team has joined with ECMC Solutions to make students aware of the repayment options that are currently available to them. Students are encouraged to contact ECMC to get more information on how to take advantage of any of these options. ECMC Solutions can be contact at 1-877-331-3262 or visit their website at www.ecmcsolutions.com/resources . Students are also encouraged to contact their loan servicers to get information on repayment options as well. It is important to stay in contact with your loan servicers so you may know all the options available to you and staying up to date with your payment information.
By Shalena Gonzales
Financial Aid Specialist, American Public University