Payback Student Loan

Paying off student loan is considered to be a difficult task for students who take loans for studies but often encounter financial constraints in paying them back to the lender. In order to keep yourloan in a good status, most borrowers are required to pay off the loan on time. A lapse even in a single payment may mark delinquency and may lead to a defaulted loan and a negative stigma on your personal credit report.

You could be in for a big break if you still owe money on Stafford student loans with a variable interest rate. Your rate will adjust on July 1, based on the 91-day Treasury-bill rate at the end of May. That will dictate what you’ll pay for the 12 months that follow, and the rate on Stafford loans could drop by as many as three percen-tage points, to 4.25%. You can lock in the new rate by waiting until July 1 and then consolidating your loans into a single loan with a fixed rate.

Such consolidations represented a midsummer ritual as borrowers refinanced their student loans to lock in rates at lower than 3%. In July 2006, however, a new law fixed the rate on new Staffords at 6.8% and prohibited students from consolidating while they were still in school. Now, graduates who passed up the chance to refinance before the July 2006 changes get another opportunity to lower their rate significantly.

Depending on what you can afford, there are plenty of ways you can arrange to pay back your loans. If you can do it, the standard payment plan gets you the lowest total loan cost. Other options include:

  • Graduated payment plan: Payments start small (like your salary), then get bigger over time (let’s hope the analogy holds). It’s a convenient option for you now, but it’ll cost you more in interest payments.
  • Income-based payment plans: Similar to the graduated plan, but the monthly payment amounts are tied directly to your income instead of rising gradually no matter what your income.
  • Extended repayment: Allows you to make smaller payments for a much longer period of time. Of course, the longer you owe money, the more interest you pay, and the total amount in the end goes up dramatically.
  • Consolidation: This option may actually lower the total amount you pay. If a lender can offer you a lower interest rate, and combine all of your loan payments into one convenient payment, you could save a lot of money over the life of your loan.

Depends on how well you’re informed in math. First, let’s establish some groundwork. The monthly of $700 is based on the following typical assumptions: $60,000loan at a fixed 7.1%, payable over 10 years. In order to drop the monthly to $403.00, lenders will have to change one of those numbers to something favorable to them and attractive to you. The most common way to do this is extending the payable years. Specifically, by extending the payment from 10 years to 30 years and keeping the other terms the same, your monthly will go down to $403.

In your original loan, the total student loan pay back over 10 years is in the neighborhood of $84,000. That’s $24,000 of interests over the amount you’ve borrowed. By extending to 30 years, the total payment goes up to $145,000. The total interest you’re paying goes up to $85,000. So with a 30 year extension, you should be aware that you could be paying over twice the amount that you’ve borrowed.

Be Sociable, Share!