Student loan repayment option
Student loans are taken by students for meeting out expenses related to different types of course offered by various universities, schools and other such institutes.Student loans are required to be paid back after the completion of course.Sometimes, a student gets a grace period of 6 months etc, so that he can search for a job for making the installments.Though a student or his parents may be asked to repay the interest debited in the student loan account, principal amount is paid back by the student upon the completion of course.A student can repay the loan taken by means of various types of repayment options and these are called as Student Loan Repayment Options.Let us discuss these repayment options available to students with reference to United States.
STUDENT LOAN REPAYMENT OPTIONS IN UNITED STATES
There are many types of student loans that are provided by Federal Government in U.S. These loans include Stafford loans, plus loans, alternative loans etc.Apart from this, private institutions also take part in providing student loans to needy people and they have their own repayment options.The logic behind providing different types of loan repayment options to a student is that financial circumstances of all the students are not same and thus, it is necessary that different types of options be provided to students so that they can choose the best one as per their financial circumstances.Most of lenders in United States offer many flexible student loan repayment options.The reader should note here that the type of repayment options provided to a person depends upon the type of loan taken by a student. If a student has taken any type of government issued student loan like Stafford loans of any other type of government issues student loan from banks, there are many options provided by federal government and banks to a student.However, if a student has taken a federal student loan issued by a school like Perkins Loan, the repayment options are provided by school rather than federal government.If the student loan has been taken from a private source, a student has fewer repayment options as compared to above two.Private student loans are made without federal funds. All the loan options are available only when a student has not defaulted in making repayments. It is thus advised here that a student should never wait until he finds himself comfortable in making repayments and should avail these options at the start of repayment period.
First type of repayment option available is the Standard Repayment Option.In this type of repayment option, Principal amount and the interest amount becomes due each month throughout the repayment period of student loan.This type of loan repayment option is best for those students that can afford to make monthly payment.Though a person is required to pay principal and interest together, he pays less interest as compared to other loan options available.
Second type of student loan repayment option available is the Graduated Repayment Option.In this type of option, a person is allowed to make smaller payments at the start of repayment period and these payments are increased gradually at the specific periods.Some people consider this type of repayment option as the best because this loan repayment option allows a person to make the installment comfortably, as the salary or income of a person increases with time.Mostly, first few installments are used against the interest debited in the student loan account.
Next type of student loan repayment option available to a student is the Income Based Repayment.In this type of repayment option, the monthly installment is fixed as a percentage of the monthly gross income of a person.This repayment option is also called as Income Sensitive Repayment Plan. As the income of a person increased, the amount that becomes repayable also increases until full loan amount is repaid.
Next type of repayment option available for students in United States is the Extended Repayment Option. In this type of option, all the loan borrowers pertaining to Stafford"> loans, Plus loans and Alternative loans are provided stretched repayment period up to 25 years.
Last type of repayment option available is the Serialization and Consolidation.In this type of repayment option, a loan holder purchases the student loans provided by various financial institution and pool them into one account.A person is required to make one monthly installment only. It is important to note here that in Serialization, though a student makes one monthly installment only, all the original terms and conditions of loan and interest rates are kept intact.In consolidation, all the student loans of a person are combined and these are repaid by means of a single monthly installment. This is done by means of a new loan that is provided to a student, with new interest rate and repayment options.
OTHER ASPECTS
It is very important for the reader to understand here that a person should not get locked in a particular loan repayment option for the full term of loan.The lender of the student loan must allow him to change his repayment option at least once in a year.Different types of rules govern the federal student loans and private student loans.All the options discussed above are regarding the federal student loans.In present times, there are many debt management companies that are helping a student in consolidating his different student loans.There is also a federal student loan consolidation program. These programs are considered as beneficial for a student due to many reasons. First of all, a student can reduce the monthly installment up to 60% of the original installment.Secondly, a student is required to make one monthly installment only and there is no need of remembering the date and amount of various student loan installments.Since consolidation loans are provided at lower interest rates, a student can save some money every month towards the interest payment.In the whole process, the student also improves his credit rating and can taken future loans at lower interest rates.
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