Six Steps for Managing Your Student Loan - The Clock Starts Now
HESC offers planning tips for recent college grads
- Grace period for most federal student loans begins now
- Plan for repayment by creating a budget
- Choose the best repayment plan for your situation
- You may have options if you have trouble repaying
(Albany, NY: May 16, 2012) The ink is barely dry on college diplomas, but the clock is ticking on the six-month grace period for federal student loans. Recent college graduates are reminded that repayment on their federal student loans will begin in November.
New grads are encouraged to review their loan repayment options and their rights and responsibilities as borrowers. The New York State Higher Education Services Corporation (HESC), the State’s financial aid agency that helps people pay for college, offers guidance in preparation for repayment at its Web site, hesc.ny.gov.
1. Make and stick to a budget
Developing a personal budget will help you live within your income and manage your payments. There are a number of budgeting tools available to help establish your budget, or you can use the HESC Budget Builder
found on HESC.org; remember to meet your “needs” first, then your “wants” as you can afford. Revisit your budget regularly to make adjustments as necessary.
2. Know Your Lender or Servicer
Do you know where your federal loan is and how much you owe? Since you took your student loan, your original lender may have contracted with a servicer or sold your loan to another company. Either way, you will still have the same rights and responsibilities outlined in your original loan. The National Student Loan Data System (NSLDS)
can provide you with a history of your federal student loans.
3. Read and keep all documents pertaining to your student loans.
Be sure to understand all the terms regarding your loans and how much you will be expected to pay each month. Keep copies of all paperwork relating to your loan in your financial aid file.
4. Choose a repayment plan
When it's time to start repaying your student loans, you can select a repayment plan that’s right for your financial situation. Generally, you'll have from 10 to 25 years to repay your loan, depending on the repayment plan you choose.
5. Start Repayment
Pay a fixed amount each month. The minimum monthly payment for this option is $50 and the loan must be repaid within ten years.
This is the most cost effective plan as it minimizes the amount of interest you will have to pay.
Extended repayment is for borrowers who owe a minimum of $30,000 within a specific federal student loan program. Payment amounts are either fixed or graduated and can have a maximum repayment period of 25 years.
This plan is generally more expensive than the Standard plan because the loan balance decreases more slowly while interest continues to accrue.
This repayment plan starts out with low payments that increase over time, usually every 2 years. You must repay the loan within 10 years and the minimum payment must cover the interest that accrues on your loan between payments.
Graduated repayment is more expensive than the Standard plan because more interest accrues early in repayment. Your earlier monthly payments are lower than later payments, causing the loan balance to decrease at a slower rate.
Income-sensitive repayment is based on your annual income at the time you begin repayment. As your income increases or decreases, so do your payments.
Your income status is reviewed annually and you have 10 years to pay your loan.
This plan is more expensive than the Standard plan and usually more expensive than the Graduated plan. More interest accrues because you are taking longer to pay down your principal balance.
Known as IBR, payments are based on your monthly income and family size as compared with the national standard poverty level.
This repayment plan is for individuals with exceptional financial hardship or who are pursuing careers in public service. The loan term may exceed 10 years and you may qualify for cancellation of any outstanding balance of your loan if you repay under this plan and meet certain other requirements.
After the grace period, you’ll start repaying your federal student loans. You can prepay part or the entire loan principal at any time without penalty, saving you money on interest. Ask your lender to apply any prepayments to the loan principal. Most lenders and servicers offer online payments or automatic deductions from your checking account and may offer an interest discount if you agree to use these services. Check with your lender or servicer for details.
6. Keep in Touch
Remember to notify your lender in writing if you change your name, address or phone number, so that important notifications and information can be sent directly to you.
What if You Can’t Pay?
Unemployment, illness or other extenuating circumstances may be creating repayment problems, but ignoring your student loans will create a more serious situation later.
If you fail to repay on time, your loan becomes delinquent. If you stay delinquent, your loan defaults and the entire balance becomes due. Don’t let payment problems get out-of-hand…work with your lender at the first sign of difficulty. You may be eligible for a deferment, which delays payment, or your lender may agree to a forbearance, which may temporarily suspend or reduce your payment.
Managing your student loan intelligently is an important step in meeting your obligations, establishing a good credit history and safeguarding your financial future.
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