By: Bryan Lee, UHEAA
If you know how to make sense of your loan repayment plan you can avoid falling into delinquency or default. Did you know that when you borrow money you’re signing a legal agreement? This means, loan repayment is very important to sustain a good credit history.
Repaying your student loans may sound a little daunting and you may not know exactly where to start. Here are four steps to help you get familiar with student loan repayment. Pay close attention to these four steps to get ready for repayment.
1. Know The Type of Student Loan You Have
You may have applied for and used different types of financial, such as scholarships, grants, or student loans. If you borrowed student loans to pay for college or university it’s crucial to understand what kind of student loan you have.
Federal Student Loans: Loans funded by the federal government
Private student loans: Loans made by lenders such as state agencies, banks, credit unions, and/or schools.
2. Understand Your Interest Rate
Fixed Rate: The rate you pay is locked and does not change. This means you’ll have the same interest rate throughout the life of your loan.
Variable Rate: The rate can be adjusted based on the terms of your loan. With variable rates, it can be a little harder to keep track of how much of your monthly payment goes to interest and principal.
3. Figure Out Your Repayment Term
You may be able to choose to repay your loan over 10, 15, 25, or even 30 years. But, if you decide to increase your monthly payments or make extra payments, you can reduce how long you pay. Your repayment term depends on the terms of your loan.
4. Get To Know Your Repayment Plans
Your repayment plans depend on the type of loan you have. Federal loans offer the most flexible plans – you can even find federal plans that let you pay according to your income. Each private loan lender has different repayment options, so it’s important for you to contact your lender and learn each option. For example, Complete Student Loans offer two plans: interest only while you’re in school and full principal and interest payments.