A guide to student loan repayment

September 19th, 2014 Deb Ditzenberger
Student Loan

Student loan debt is a serious concern for recent college graduates, with 71 percent of graduates leaving college with not just a diploma, but a financial burden on their shoulders. On average, college graduates borrow $29,400 and are typically expected to begin loan payments shortly after graduation. This is the case even when financial circumstances become difficult. Defaulting on a student loan can have serious consequences, so it is important to understand your student loan and the options you have for repayment in order to build a secure financial future.

Let’s take a look at some of the top things to keep in mind when preparing to repay a student loan.

Making payments

Depending on your student loan provider, your repayment process can vary. That’s why it is important to check with your provider to discuss the payment process and review your payment options. Students are often given the choice of several repayment plans that are designed to meet your needs. Your determined repayment plan will include the amount you pay and the length of time you are given to repay your loans.

After you graduate, you are given a “grace period,” which is the amount of time you have before repayment on your loan must begin. This is designed to give you time to settle financially and select your repayment plan. Not all student loans have a grace period, so again, be sure to discuss these details with your loan provider. Generally, during the grace period, interest will accumulate, so it is crucial to be aware of the interest rate attached to your loan and how it will affect your payment.

Loan consolidation may also be an option for you as it allows you to combine multiple student loans into one. The result is a single monthly payment instead of multiple payments. Consolidating your loans can greatly simplify loan repayment by centralizing your loans to one bill and can lower monthly payments by giving you up to 30 years to repay your loans.

Setting goals

Creating a financial plan and budget that includes goals will help you achieve a stable financial standing. In most cases, the repayment period for student loans is 10 years and ideally you’ll be able to pay off all your debt within that time period. However, if this timeframe does not work with your financial plan, you can stretch out your payment period to 20 or 30 years. Although your monthly payments will become more manageable, interest will still accrue, so choose a goal that is financially obtainable over the years. The longer you take to pay off the original loan, the more it costs you in the end.

Staying organized

Remaining organized during the repayment process is crucial. Be sure to keep up with changing interest rate trends and discuss with your loan provider any problems you may experience. Sometimes, disputes arise and your payments may not be accurately recorded. If this becomes a problem, contact your loan advisor and the issue can typically be resolved.

Be sure to keep a record of all of your payments so if a dispute does arise you have proof of your payment history.

Understanding default

Defaulting on a loan can become a serious problem that can negatively impact your financial status for many years to come. To default means you failed to make your payments on your student loan as scheduled according to the binding legal document you signed at the time you took out your loan. Your loan becomes delinquent the first day after you miss a payment. The delinquency will continue until all payments are made to bring your loan to its accurate standing. If you miss 90 days of payments, loan services will report all delinquencies to all three major credit bureaus. And if you default on a loan, your credit score can be negatively impacted, making it difficult for you to take out additional loans down the road.

If you have defaulted on your student loans, contact your loan agency and explain your situation. Often times you can discuss what options are available to get out of default and your loan agency will work with you to get you back on track.

Repaying student loans is a responsibility that cannot be ignored. Making a financial plan can help you stay on track and pay off the loan in a timely fashion to establish a stable financial standing.

Deb Ditzenberger

About the author

Deb Ditzenberger is Retail Managing Officer at MidWestOne Bank.

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