Loan Repayment

You Will Have to Pay Back Those Loans, You Know

All students hope they can fully finance their education with grants and scholarships, which do not have to be paid back. But very few can. The cost of college is so prohibitive that all but the most academically gifted and lucky can avoid taking out multiple student loans. And even when students do take out loans, it can be hard for them to fully comprehend what paying them back is going to mean. Most student loans defer repayment of the debt until the student has completed school and had time to find a job. Therefore, a student loan can give a deceptive feeling of lack of responsibility, as though you never have to pay it back. You apply for student loans, your requests are fulfilled without any immediate financial contribution from you, and your time and energy are focused on your studies, rather than on any future need to meet those loan obligations.

But the day of reckoning does eventually come, and you must deal with having a loan bill. You must make its payment a regularly scheduled part of your life in a very short period of time. Although it is natural to be reluctant to spend what will probably be a sum of money you’ve been accustomed to using for living expenses, it is very much to your advantage to respond promptly every month when your loan bill arrives. Here is some practical advice to help you adjust to that new responsibility.

Understand ALL of Your Loans 

Before you sign any loan application, make sure you know exactly what you’re getting yourself into. There can be some nasty surprises lurking in the fine print, such as variable interest rates that inflate if you miss or are late on one payment. It is imperative that you know exactly what is expected of you and what your options are.

Federal and state loan contracts are relatively straightforward, because the purpose of those lenders is to facilitate your education. They make it easy to discover what will be expected of you during the loan’s term. Even so, you should take care to understand what you will eventually need to do. Your best bet is to make at least one annual appointment with your school’s financial aid counselor, who will be happy to guide you through the details of each loan.

Private lenders, however, are in business to make a profit from all their customers, including you. They will not disclose or clarify anything in the contract that they are not legally obligated to, so you must make your business to read and understand every single item. Pleading ignorance will not get you anywhere if you do not adhere to everything you promised to do in the contract.

Many young people do not ask their parents or other trusted people in their lives for advice until they’re experiencing negative consequences, but there is no need to wait. Asking for advice and assistance can help you avoid getting trapped in a predatory loan situation.

Learn About the Borrowing Process 

Before you take on a loan, study the process of borrowing money. Understanding how to borrow means much more than simply knowing you’ll have to repay it at some point. It means full comprehension of what the financial institution expects you to do, and what consequences will ensue if you fail to perform.

It is essential to remain in touch with a lender when you have trouble meeting a monthly payment. The lender wants you to be able to pay what you owe, and will usually work with you.  Lenders hate  not receiving your payment and then not being able to contact you. If you are open about any financial problems you’re having, you stand a much better chance of staying out of default and preserving your good credit.

Understand your Repayment Options

You have to make the time to research all possible repayment options so that you can choose the one that you think will be best for you. How you pay back each loan will depend on how much you can afford to pay each month while still supporting yourself. Choosing the right plan for your income-level, career prospects and family situation plays a large role in how lengthy and painful the repayment process is going to be.

If you begin your working life at healthy level and remain financially stable, the standard repayment schedule will probably work for you. If you expect to make more money in the future but currently can’t afford a high bill, then a graduated repayment plan is perfect for you because it begins with low payments which slowly increase over time as you progress through a career.

Know Your Own Repayment Goals

Besides knowing the types of repayment plans your lender offers to you, you should come up with your own plan as well. This will give you a roadmap that meets your goals, not the lender’s needs. Things to consider when coming up with this plan include how much you can afford to pay on your loan per month, how much money you expect to make after graduation and how much you will need to spend each month on rent, utilities and other bills besides your loan or loans.

If you took out more than one student loan and the multiple bills are more than your income can reliably handle, you should also consider loan consolidation.  Consolidation can help you manage your repayment schedule by rolling all your federal loans into one loan and one monthly payment.

With a solid financial plan for both college and repayment, and solid understanding of the loan repayment process, your independent financial life will start off on the right foot.