Repaying Student Loans

Repaying student loans is one of the hardest and crucial things to face after graduating from college. Apart from starting a new life after school, you need to find a job that will help you repay for your student loans. On the other hand, if you manage your loans the right way, you can save money and establish a positive credit history.

Thus, the best thing you can do when repaying student loans is to explore various options offered through repayment plans; consolidate loans, make payments on time to obtain better rates of interest; use tax breaks if available; and defer loan payments so that you can build a good credit record.

It is advisable to ask the available options for repaying student loans. Most lenders and creditors offer borrowers with alternative repayment plans specifically for those who cannot afford their monthly payments. One of the most common plans is the graduated repayment plan, which starts with a low monthly payment and gradually rises in a period of 12 to 30 years. The period depends on the amount of loan. Thus, if you are just starting on your new job, you might as well avail of such repayment plan.

Another alternative repayment plan is the income-contingent or income-sensitive plan. This plan is specifically designed for people who have fluctuating income. Say, if your income rises, the amount you owe goes up as well. On the other hand, if your income falls, so will the amount of loan that you could receive. However, most alternative repayment plans charge higher interest since you would have to repay your loan for a longer period of time.

Consolidation is another way for repaying student loans. Through consolidation, you obtain a new and lower interest rate in your outstanding principal based on weighted average of your multiple loans. However, the rates will not go higher than 8.25%.

It is important that you are able to pay your loans on time. Most private creditors and lenders offer discounts on your interest rate when you are able to make 48 consecutive payments. In addition, you can also take advantage of tax breaks offered by the federal government. If you are qualified for tax breaks, you can deduct the rate of interest you pay to a maximum of $2500 per year. If your annual income is less than $65000 while you are single or less than $130000 when married, you will be eligible for either full or partial deduction.

Deferment of your payment can also help in repaying student loans. In the event that you quit college or you lose your job, most creditors and lenders offer deferment on your payments. Getting a deferment, say, for a subsidized Stafford loan, the federal government will pay the interest obtained from your suspended payment period. If you cannot obtain a deferment, you can ask for forbearance, which will let you hold payments for up to a year. The interest will continue to accrue, but you avoid defaulting and getting a nasty strike on your credit record.

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