Saturday, March 20, 2010

Your Student Loans Payment Options

You've finally graduated. Somehow you got a career in this terrible economy. Your independent and ready to face the world by yourself. Unfortunately, this means paying more bills. One of those will most likely be your student loans. Paying back student loans could possibly be the most annoying bill you have as a young professional...And possibly the most important.

The student loan payments don't start until 6 months after graduation or, until the New Year after your graduation. For example, if you graduated in May, you won't have student loan payments until January. The average college student comes out of college with $20,000 in debt. This is a lot of money, but the good news is a lot of people are in the same boat as you.

Here is a good step-by-step process for paying back your student loans. Keep in mind that late payments can affect your credit score, and make it harder later in life to buy a car, a house, move to a different city or even get a credit card. Making payments on time is extremely important.

Before you choose a repayment plan...

* Understand the repayment options available to you.
* Compare your repayment options. Sallie Mae has a Loan Repayment Calculator available to help estimate monthly payments.
* Know the importance of paying back your loans. As previously mentioned, your credit score can be greatly affected if you don't make loans on time
* Understand that choosing a plan with lower payments may result in higher costs over the life of the loan.
* Know you can prepay your loans (partly or in full) without penalty which will lower the interest on the loans you have yet to pay back.

Lowering or postponing your payments

* Depending on your financial circumstance based on the company you work for, you might want to find a payment plan for your student loans with a low monthly payment. Federal loans through Sallie Mae that offer lower monthly payments are:

- Extended repayment - gives you up to 25 years to pay back loans. This makes monthly payments lower but makes the overall loan balance higher through interest
- Graduated repayment - this allows Stafford, Parent PLUS Graduate PLUS, and Federal Consolidation loans to have reduced rates as low as just the interest. Also, many who choose this repayment option need to repay during school as well because the repayment option takes so long.
- Income-sensitive repayment - You apply annually to this payment option; paying 4-25% of your monthly gross income along with the monthly accrued interest.
- Income-based repayment - This plan allows customers to make monthly payments that are no higher than 15% of their discretionary income. This is designed for people with higher loan balances as compared to their incomes

* Postponing your payments can be done in two ways; Deferments and Forbearance. Deferments are a temporary suspension of paying back student loans whereas a forbearance lets you suspend or reduce your student loan payments under certain circumstances and for specified periods of up to a year at a time.

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