Many students think loan repayment starts after graduation. However, the repayment process actually starts before you even borrow any money. When you obtain a loan you have certain responsibilities.
- Borrower’s responsibilities
- Borrower’s rights
- Deferment options
- When/why to consolidate student loans
Before you take any money from someone you need to think about how much you need and how you will pay them back. The same goes for taking out a student loan, and it is important to understand what your repayment obligations are and how they will affect your future finances. For this reason, you have to sign a promissory note confirming that you agree to repay the loan even if you don’t complete your education.
Your Rights and Responsibilities
Whether you’ve borrowed from the federal government or a private lender, it is your responsibility to ensure your payments are on time, even if you do not receive a bill, notice or reminder.
If you take out a Federal Loan and you’re a first-time borrower, you must complete entrance and exit counseling sessions. These sessions provide useful tips, help you develop a budget and allow you to better understand loan responsibilities. Private lenders focus more on your credit and don’t require these sessions.
It is also important to utilize your borrower’s rights when you acquire a student loan. First, you should know the exact amount of the loan and its interest rate. This is especially important when choosing a private lender, as their rates are more likely to vary.
You must also know the date you will have to start your repayment. If you have taken out a Federal Loan you will most likely have a grace period for payback after graduation. The government will usually wait six months after graduation before requiring repayment. A private loan will most likely kick in right after graduation, so check with your lender.
Most of this information can be found in your loan repayment schedule, which states when your first payment is due, the number and frequency of payments and the amount of each installment. It will be provided by your school (Federal) or servicer (Private).
Be Familiar with Deferment Options
Under certain circumstances you can postpone your loan repayment for free, which is known as a deferment. The Department of Education always offers deferment options, while some private lenders do not (check beforehand). In most cases, as long as you are enrolled in an accredited university and meet minimum credit requirements, you can defer payment of the loan until six months after graduation.
This will allow you to work off your loan after you’ve found a job as opposed to while still in school. You must apply for deferment, either through your school or servicer.
Should You Consolidate Your Loans?
Another student loan repayment option is consolidation. Student and parent borrowers have the option of combining multiple student loans, with differing repayment schedules, into a Direct Consolidation Loan. This results in a single monthly payment instead of multiple payments. Consolidation takes the average of each loan’s rate and uses that as the single loan rate.
It’s important to keep in mind that consolidating your loan can affect your payment amount, payment period and interest amount. Your monthly payment might be lower because of an extended pay period, but you will pay more interest over time. You also run the risk of losing borrower benefits by consolidating your private loans.
The time to consolidate your loans is during your six-month grace period. Consolidating makes repayment a lot easier, but may cost you more money in the long run.
Once you’ve learned your borrower’s rights and responsibilities, filed for deferment, weighed your consolidation options and finally drawn out a repayment plan, you are ready to pay off your education!
- You have certain responsibilities and obligations when you take out a loan.
- Learn your rights as a borrower so you can draw up an organized repayment plan.
- Utilize deferment to allow yourself to focus on your studies.
- Consolidation can reduce individual payments, but can increase the overall cost of the loan.