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A trip through the inner workings of the student loan system

Posted on 14 September 2008

As exciting as graduation is, there is nothing quite like the adrenaline rush you get six months and 45 days later. Why six months and 45 days? That’s when your first student loan payment is due. If your experience is anything like most, the adrenaline is due more to anxiety than pleasure.

But paying back your student loans does not have to be nerve-racking.

Take the stress out of repayment by being smart. Know how the student loan system works, and come up with your own strategy. Before starting out, always remember that your lender wants to help you pay back the loan. Defaulting on a student loan or being delinquent is not a good idea – it will damage your credit history and prevent you from getting future loans, cause great aggravation, or even worse, prevent you from getting a job that requires a credit check. It’s also bad for the lender. They would like their money back. That’s why they are always willing to work with you in developing a repayment schedule that is satisfactory to everyone.

There are various ways that lenders can structure your payment schedule:

  • Loan Consolidation. Another option for easing the repayment burden is loan consolidation. Simply, you are combining all of your student loans into one. This simplifies the payment process, and it can also reduce your monthly payment. Your lower-rate loans will be combined with higher-rate loans to determine an average interest rate – this can work either to your advantage or disadvantage, so make sure you do the math. Evaluate the trade-offs and decide what is best for you. For more information, contact the student loan consolidation program at 1-866-311-8076 
  • Fixed Repayment Plan. The first option is a fixed repayment plan. Under this plan, you would pay the same amount each month for the life of a 10-year loan. You’ll know exactly how long it will take to get rid of the loan, and the amount of interest you will pay is absolutely predictable.
  • Graduated Repayment Plan. A graduated repayment plan works on the assumption that your ability to repay a loan will increase as your wages increase. With this plan, your minimum payments start out low, but then increase every two years. You can stretch out the payments until you can afford to pay more.
    There are no penalties for paying off your loans ahead of schedule. No matter which payment plan you are on, you can always pay more than the minimum, if you can afford it.
  • Income-Contingent Plan. If you are really strapped for cash, you may be able to get an income-contingent repayment plan. Here, your lender looks at your adjusted gross income to come up with an appropriate payment schedule. For this route, you’ll need to demonstrate a real financial hardship, but don’t be afraid to pursue this plan if you need help.


  • Deferment. It is possible to postpone paying off your loans for a specific period of time. You become eligible for a deferment if you go back to school (a tempting reason to go after an advanced degree and pile up more loans), have a temporary disability or lose your job. There may be other qualifying events, so always consult your lender. It is your right to defer your loans, if you can prove that you qualify.
  • Forbearance. Like deferment, forbearance allows you to push off those payments. However, you do not have an automatic right to a forbearance. A forbearance allows you to postpone payments for a period determined by your lender, generally 18-24 months. A forbearance is usually granted in cases of economic hardship where a deferment does not apply. You may have to demonstrate financial problems, and reapply every six to 12 months.
    In both cases, you will be responsible for the interest that accrues. If you have a Subsidized Stafford Loan,the federal government will pay the interest during the deferral period, but not if you have a forbearance. You have the option of paying only the interest during either deferral or forbearance. This will reduce the total amount you have to pay back at the end of the postponement period. Or, you can allow the interest to accrue.

The most important part of your repayment strategy is organization. Keep records, and hang on to everything your lender sends you. Open correspondence from your lender promptly. Phone immediately if you don’t understand what they sent you. Notify your lender of pertinent changes in your life, employment status, or address. Remember, they want to help you.

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1 Comments For This Post

  1. New Edge Credit says:

    If any one gives loan it is the responsibility to repay back the loan in time which not only improves the impression but keeps good credit score indeed………….

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