25 Questions Answered About Efficient Management of Student Loans
1. What are student loans?
Student loans are borrowed funds used to finance tuition, fees, living expenses, and other related education costs. It is crucial that you repay the loan with interest after graduation, withdrawal from school, or reducing your enrollment below half-time.
2. What are federal student loans?
Federal student loans are those made available by the U.S. Department of Education. Their interest rates and repayment options tend to be much better than for private loans. Some common forms of federal student loans are Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.
3. What are private student loans?
Private student loans are those coming from banks, credit unions, or other private lenders. Usually, they come with higher interest rates than federal loans and may also have fewer options for repayment. So, a private student loan should be sought as a last resort.
4. What’s the difference between subsidized and unsubsidized student loans?
Subsidized loans are need-based and have the benefit of the government paying the interest while you’re in school, during the grace period, and during any deferment periods. Unsubsidized loans are not need-based, and interest begins to accrue as soon as the loan is disbursed.
5. How do I determine how much I owe on my student loans?
You can get your federal loan balance on the National Student Loan Data System, or for private loans, you can get it by logging into the website of the lender. Your loan servicer will also give you details about the amount that you owe and your payment schedule.
6. What is the grace period for student loans?
The grace period is the time following graduation (or when you fall below half-time enrollment) until you must begin paying back federal student loans. The grace period varies by loan, but it usually lasts six months.
7. What are the options for repayment of federal student loans?
Federal student loans offer several repayment plans, including:
Standard Repayment Plan: A fixed payment for 10 years.
Graduated Repayment Plan: Payments start low and increase every two years.
Income-Driven Repayment Plans: Payments are based on your income, making them more affordable if you have a lower income.
Extended Repayment Plan: Payments are spread over up to 25 years.
8. What are income-driven repayment plans?
IDR plans determine your payments by income, family size, and federal student loan debt. Popular IDR plans are Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn.
9. What will happen if I default on my student loan payment?
A late fee is added to your account for each student loan payment missed, and it may lower your credit score. If this happens you miss more payments, your student loans might go into default. Plan ahead and discuss how you can settle with a deferment, forbearance, or with another type of solution before defaulting.
10. How can I reduce my payments?
Reduce your payments by:
Switching to an income-driven repayment plan.
Consolidating or refinancing your loans to lock in lower interest rates (for private loans).
Looking into deferment or forbearance if you temporarily cannot make payments.
11. What is loan consolidation?
Loan consolidation enables you to merge multiple federal student loans into one loan with a single monthly payment. It can simplify the repayment process, but it may not reduce your interest rate, and you could lose borrower benefits like interest subsidies.
12. What is refinancing, and should I consider it?
Refinancing refers to taking a new loan to pay off your existing student loans at a lower interest rate. Both federal and private loans can be refinanced; however, if you refinance your federal loans with a private lender, you lose all the protections associated with federal loans, including income-driven repayment options and forgiveness programs.
13. What is Public Service Loan Forgiveness (PSLF)?
PSLF is a federal program. Federal borrowers who have been working at a qualifying public service job—say, the city and town government agency, or working at a not-for-profit—and make 120 of these qualifying payments get their loans forgiven.
14. How Do I Qualify for Loan Forgiveness Programs?
Work full-time at a qualifying public service employer.
Make 120 qualifying payments under an income-driven repayment plan or the Standard Repayment Plan.
Keep accurate records of your employment and payments.
15. Can I make extra payments to pay off my student loan faster?
You can pay extra on your student loan with either a one-time lump sum payment or additional payments over and above what you are paying each month. Ensure that you instruct your loan servicing agency to make the surplus amount applying to the principal so that more of your loan will be repaid early.
16. What happens if I default on a student loan?
Defaulting on a federal student loan happens when you have been late for 270 days. Consequences are:
Wage garnishment.
Federal tax refund offset.
Destruction of credit.
Loss of eligibility for federal student aid.
17. How can I get out of student loan default?
To get out of default, you can:
Join a rehabilitation program that will demand nine monthly payments within 10 months.
Combine your loans.
Pay off the defaulted loan completely.
18. Are interest payments on student loans tax-deductible?
Yes, you may be able to deduct up to $2,500 of the interest you pay on student loans, depending on your income. The deduction applies whether you itemize deductions or not, making it a direct benefit on your tax return.
19. What is deferment, and how does it work?
Under a deferment, you may suspend payments on federal student loans if you qualify by going to school at least half time or facing other financial difficulties. You will owe no payments under a deferment, but depending on the loan type, the interest may either not accrue or be collected.
20. What is forbearance, and when should I use it?
Forbearance is another option to temporarily stop or reduce your student loan payments if you’re facing financial difficulty. While your loan payments are paused, interest continues to accrue, making this a less favorable option than deferment. It’s best used as a last resort.
21. How does my loan servicer help with student loans?
Your loan servicer is responsible for managing your student loan account. They handle billing, payment options, deferments, and other related services. You can contact your servicer if you’re struggling with payments or want to explore options like loan consolidation or switching repayment plans.
22. How can I avoid loan scams?
Be wary of any company that will ask for an upfront fee to help with consolidation or forgiveness of a loan. Federal programs are free to apply for. When handling federal loans, always use the official website StudentAid.gov.
23. How do I determine my amount for repaying my student loans?
You can use an online loan repayment calculator to estimate how much you will pay per month based on your loan balance, interest rate, and repayment term. Your servicer will also provide the official repayment amounts.
24. Should I pay off high-interest loans first?
In general, one should focus on repaying the loan with the largest interest rate first. This minimizes the total interest paid over the lifetime of a loan, and you pay off your debt most efficiently.
25. I am having trouble making my student loan payments. What should I do?
If you are really having trouble meeting your payments, don’t ignore this situation. Discuss changing your payment plan, consider applying for a deferment or forbearance, consolidate and refinance the loans, and talk to the loan servicer about other choices.
Managing your student loans efficiently should make you understand your loan terms, discover the options of repayment, and be proactive to prevent problems when you might need it the most. Planning ahead with strategies that include refinancing, loan forgiveness, and maximizing repayment will lower your stress and help you pay off your loans.
