Student loans are very helpful to students trying to put themselves through college. They can not only help to pay for tuition, books and other school supplies, but can pay for living expenses as well while the student is in school. Once the student graduates the student loan will need to be repaid.
To maintain a good credit rating and to stay out of trouble with the federal government it is very important to repay student loans on time. Payments that are over 270 days late go into default. The federal government has the power to charge late fees, collection costs, garnish wages and apply both state and federal income tax refunds to the amount you owe on your student loans. The government can also report your loan default to the major credit bureaus, sue you, and deny future student finance aid. Student loans are not discharged in a bankruptcy and the federal government will attempt to collect on student loans for a minimum of twenty five years.
Repaying student loans is a serious issue so it is important to know what your repayment options are so that you can stay in good standing and make your loan payments on time. The federal government recognizes that repaying student loans can be challenging. They have come up with several different repayment options to help make paying back student loans more manageable.
There are four basic repayment options on Federal Stafford student loans. There is the standard repayment option, an extended repayment option, income based repayment and a graduated repayment option that are available.
With a standard repayment option, the loan is repaid over ten years. You will pay the least amount of interest with this option.
An extended repayment option increases the term on the loan from ten years up to as many as twenty five years. This option will help to reduce your monthly payments but you will pay more interest overall than you will with the standard repayment option.
With a graduated repayment option, payments start out small in the early years and gradually increase over the repayment time period. The payments increase every two years. This offers a newly graduated student some relief. Hopefully your income will increase as the loan payments increase.
Finally there are the income-sensitive and income-contingent repayment options. Under these options the monthly payment is based on the borrower’s income. This can help low income borrowers who cannot afford to pay the standard payment amount each month. Borrowers may also be eligible for a deferment or forbearance in certain situations.