4 Tips To Handle Student Loan Payments

A lady deep in thoughtStudent loan is pretty much a part of the US higher education system. Apart from government-backed federal loans, there are investment plans with tax incentives specifically for college costs. The steady increase in cost of attendance for different colleges and universities in the country is not helping the plight of college undergraduates as well. The only way to cope is to increase the amount being borrowed for college and hope to repay it back once employment becomes a reality.

It is no secret that the student loan has gone over the $1 trillion mark with no signs of slowdown. Asa.org shows that there are about $864 billion for federal loans and around $150 billion private student loans in that mix. This is the amount the college graduates have taken out to finance higher education. And every year, about 12 million of the approximately 20 million students enrolled take out student loans to cover the expenses in school.

There are now more than 37 million college loan borrowers across the country. That is bigger than the population of some states in the US. Of these borrowers, about 14% are dealing with past due student loan payments. One reason why people believe that student loan holds back the economy is that for every borrower who defaults, the chances are two more of them spirals down from current to delinquent status.

A lot of college debt holders are finding it extremely hard to make the payments on their student loans after school. Some may not have any job prospects and does not seem to be getting much luck in landing a steady job. For others, they are experiencing first hand how it is to balance student loan payments plus living expenses and stretch that out with a rookie’s salary.

Managing student loan payments

As soon as a borrower separates from school either through graduating, which is the most popular, to dropping out or simply falling below half-time student status, the repayment period will be just around the corner. For federal student loans, there are race periods that can stretch to either six months to nine months depending on the type of loan you have. Private loans sometimes start collecting interest payments while the borrower is in school. But nevertheless, whatever type of student loan you have, repayment is a fact of life and here are a few tips to go about it.

Face the payment

For most self-help programs, the usual step number one is to face the problem. Acknowledge that there is a situation that has to be dealt with. This holds true even for student loan debt – know that there are payment to be made and don’t run away from the responsibility. It is hard enough that student loans are almost impossible to be discharged in bankruptcy, looking the other way will only add more interest and charges to the total payment due.

The borrower must face repayment for the student loan debt. There are options, especially for federal student loans on how to make repayments as easy as possible. Straight payments and income based payments are just some of the payment programs a student loan borrower can look into which can help make the repayment easier in the pocket.

Deferment and forbearance

These two non-payment options for a federal student loan are great programs for borrowers who are encountering financial hardship and needs a few months to get back on their feet. The main difference between the two is interest payment. Before distinguishing one from the other, it is best to understand subsidized and unsubsidized student loans.

Subsidized student loans is a need-based aid that is extended to those that need financial support. Under this loan structure, the federal government pays for the interest payments for the student loan up until the time the borrower either separates from school or the course limit has been reached. After the grace period, that is the only time a borrower will pay for interest on the loan. There are no accrual on the student loan interest and the payment will still be on the original principal borrowed.

Unsubsidized is just the opposite – the government does not pay for the interest on the loan and it accrues over time. And the interest is capitalized at the beginning of the repayment period. It is added to the capital amount where interest is assessed. The difference of deferment and forbearance is that the latter does not take into account the subsidy and will accrue interest in the loan. But deferment will honor the subsidy and the government will again pay for the interest on the loan.

Moneyning.com warns against deferment and there is wisdom in it. As much as possible, pay what you can and stay away from deferment and forbearance. But if needed, know which of the two will work best for your student loans.

Prioritize private student loan

Private student loans turns out to be more costly when compared to federal student loans. When your mix of student loans includes a good number of private college debt, it is best to pay more on your private student loans first while sending minimum checks to federal loans. This is because the interest payments you are making on the private ones are more than the interest on the federal loans.

Student loan consolidation with an expert

Consolidating your student loans is a great move to make your monthly payments easier. The basic idea is that all your student loans will be under one single payment. This replaces all the different amount, different due dates, varying interest rates and payment terms. But to be on the safe side, it would be wise to consolidate with an expert company that has years of experience in consolidating loans.

These companies will not only tell you the benefits of student loan consolidation but guide you as well in the process. Their expertise in the industry can be used to help you get started in student loan consolidation. This is a great deal rather than trying to find out for yourself and incur costly mistakes. But student loan holders must also exercise due diligence in looking for the right company to work with. There are a lot scam companies that are out there to pull a quick one under you and take away your money that could have been used for student loan payment.

Federal student loan and private student loan consolidation

As there are differences between federal and private student loans, consolidating them would have different pros and cons. The borrower would need to understand these before pursuing student loan consolidation.

Here is short video about the difference of a private student loan versus a federal student loan:

The rule of thumb is to never combine federal loans with private student loans. This is because your federal student loans will be on the losing end of the bargain when consolidated under a private loan consolidation. The best option is to consolidate all your federal loans together and all your private loans together as well. This keeps them separated and the repayment options as well as the low interest rate of your federal student loans will be preserved.

The student loan is a great tool to push a person in reaching more in life. But just like any other loan or credit tool, it has to be repaid. There are tips on how to approach the repayment phase of student loans to help the borrower manage the payments easier.