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Tips on Paying Off Your Student Loans Efficiently

Updated on February 28, 2013

Congratulations Graduates! You Got The Diploma Now Learn How To Repay The Debt

Source

Pay Back Uncle Sam For Your Federal Student Loan

A federal student loan is probably the best way to finance a college education. Interest rates are low and the terms are very generous. The best thing about the loan is that as long as you are in school you don't have to pay repay the Perkins or Stafford Loans, but you will have to when you graduate.

If you fail to repay your loan you may be declared delinquent or in default. To be in dafault means that you have failed to meet the terms and conditions of the promissory note (more on the promissory note below). You don't want that to happen. Not only does it impact your credit, but it can also impact your ability to get a job.


This hub will help you understand your repayment options and how you may be able to have your loan reduced or even forgiven.

Your Responsibilities As A Federal Student Loan Recipient

When you received a federal student loan you sign a promissory note. It means you have agreed to repay your student loan according to the terms.

Tip: Make sure you read all of the fine print on the promissory note. Don't sign blind.

You also have a responsibility to notify the government or loan servicer as soon as you...

  • transfer to another school
  • withdraw
  • graduate
  • drop below half time
  • change your name or address

Make payments are another responsibility that is often overlooked by graduates that can't find a job. Even if you can't find a job after graduate you still have to repay your student loan. It is not up to government to get a job for you, it's up to you.

Tip: Choose your school wisely. Make sure that graduates find jobs. Talk to other people who have attended the school and ask about their career services.

Sometimes you can ask for a deferment or forbearance if you can't find a job. If you do, still make payments on your loan until you receive approval. If you don't make payments on your loan you may end up in default.

Tip: Document your discussion. Whenever you talk to any lender or creditor make sure you document who you talked to, what was discussed, what you did and any agreements that were made.

Understand Your Student Loan Obligations

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Federal Student Loan Grace Period

Generally during the grace period you do not have to pay back your principal and/or interest on most federal student loans.

  • Federal Perkins Loan - 9 month grace period, during this time you don't have to pay any principal and you won't be charged interest
  • Direct or FFEL Stafford Loans - 6 month grace period
  • Subsidized loan - During the grace period, you don't have to pay any principal and you won't be charged interest.
  • Unsubsidized loans - You don't have to pay nay principal, but you will be charged interest

If you have questions about your grace period talk to your lender. You are responsible for making your payments on time in order to avoid default.

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Types of Repayment Plans

There are several ways to repay your student loan based upon the type of loan you have. FFEL Stafford Loans and Direct Stafford Loans have the same repayment loans (see chart below). The Direct Loan has an income-contingent plan and FFEL program has an income sensitive plan.

See the chart below for further details.

Overview of Direct Loan and FFEL Program Repayment Plans

Repayment Plan
Eligible Loans
Monthly Payment and Time Frame
Quick Comparison
Standard Repayment Plan
*Direct Subsidized and Unsubsidized Loans *Subsidized and Unsubsidized Federal Stafford Loans *All Plus Loans
Payments are a fixed amount of at least $50 per month. Up to 10 years
You'll pay less interest for your loan over time under this plan than you would under other plans.
Graduated Repayment Plan
*Direct Subsidized and Unsubsidized Loans *Subsidized and Unsubsidized Federal Stafford Loans *All Plus Loans
Payments are lower at first and then increase, usually every two years. Up to 10 years
You'll pay more for your loan over time than under the 10-year standard plan.You'll pay less interest for your loan over time under this plan than you would under other plans.
Extended Repayment Plan
*Direct Subsidized and Unsubsidized Loans *Subsidized and Unsubsidized Federal Stafford Loans *All Plus Loans
Payments may be fixed or graduated. Up to 25 years
Your monthly payments would be lower than the 10-year standard plan. If you are a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans. FFEL borrower, you must have more than $30,000 in outstanding FFEL Program loans. For example, if you have $35,000 in outstanding FFEL Program loans, and $10,000 in Direct Loans, you can use the extended repayment plan for your FFEL Program loans, but not for your Direct Loans. For both programs, you must also be a new borrower as of Oct. 7, 1998. You'll pay more for your loan over time than under the 10-year standard plan.
Income Based Repayment Plan (IBR)
*Direct Subsidized and Unsubsidized Loans *Subsidized and Unsubsidized Federal Stafford Loans *All Plus Loans Made To Students *Consolidation Loans (Direct or FFEL) that do not include Direct of FFEL PLUS loans made to parents
Your maximum monthly payments will be 15 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Your payments change as your income changes. Up to 25 years
You must have a partial financial hardship. Your monthly payments will be lower than payments under the 10-year standard plan. You'll pay more for your loan over time than you would under the 10-year standard plan. If you have not repaid your loan in full after making the equivalent of 25 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven. You may have to pay income tax on any amount that is forgiven.
Pay As You Earn Repayment Plan
*Direct Subsidized and Unsubsidized Loans *Direct PLUS loans made to students *Direct Consolidation Loans that do not include (Direct or FFEL) PLUS loans made to parents
Your maximum monthly payments will be 10 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Your payments change as your income changes. Up to 20 years
You must be a new borrower on or after Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You must have a partial financial hardship. Your monthly payments will be lower than payments under the 10-year standard plan. You'll pay more for your loan over time than you would under the 10-year standard plan. If you have not repaid your loan in full after you made the equivalent of 20 years of qualifying monthly payments, any outstanding balance on your loan will be forgiven. You may have to pay income tax on any amount that is forgiven.
Income-Contingent Repayment Plan
*Direct Subsidized and Unsubsidized Loans *Direct PLUS Loans made to students *Direct Consolidation Loans
Payments are calculated each year and are based on your adjusted gross income, family size, and the total amount of your Direct Loans. Your payments change as your income changes. Up to 25 years
You'll pay more for your loan over time than under the 10-year standard plan. If you do not repay your loan after making the equivalent of 25 years of qualifying monthly payments, the unpaid portion will be forgiven. You may have to pay income tax on the amount that is forgiven.
Income-Sensitive Repayment Plan
*Subsidized and Unsubsidized Federal Stafford Loans *FFEL PLUS Loans *FFEL Consolidation Loans
Your monthly payment is based on annual income. Your payments change as your income changes. Up to 10 years
You'll pay more for your loan over time than you would under the 10-year standard plan. Each lender's formula for determining the monthly payment amount under this plan can vary.
Retrieved from the Federal Student Aid website on February 21, 2013 http://studentaid.ed.gov/repay-loans/understand/plans

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    • SaffronBlossom profile image

      SaffronBlossom 4 years ago from Dallas, Texas

      Excellent hub! I wish I had been more informed before taking out student loans to pay for law school...I probably would not have gone if I had realized how hard it is to pay them back! I should be done when I'm around 45. :)

    • livelifeworryfree profile image
      Author

      Princess Clark 4 years ago from The DMV

      Thanks SaffronBlossom. What a worthy goal to set for yourself. I know you can make it happen. Thanks for the comment!

    • everymom profile image

      Anahi Pari-di-Monriva 4 years ago from Massachusetts

      This was an excellent hub! Thanks so much! I shall have my daughter read it already (though she's only just 11 - but it's never too early to learn financial sense - especially since I only got sense now, in my later years...it is definitely a learned skill!).

    • Abby Campbell profile image

      Abby Campbell 4 years ago from Charlotte, North Carolina

      Excellent hub, livelifeworryfree! With two daughters in college, this is a great post for them to read and learn as well. ;)

    • shaymarie profile image

      Shay Marie 4 years ago from California

      I wish all student borrowers actually had to sit down and learn all about the student loan system before getting a dime.

      If I may, I'd like to add one important note for anyone that happens to come across the article: not all student loans are Federal student loans. Student Loans that you get from a bank or any other private financial institution (such as Sallie Mae, which is NOT a government agency, contrary to popular belief) are Private student loans. Private student loans do not come with many repayment options; this means no income based repayment plans, no public service programs, and very very little negotiation of monthly payments. They also tend to have higher interest rates. Default on private student loans is very very common.

      livelifeworryfree - There is a petition on Sign-on.com that may be of interest to you or your readers. The Student Loan Fairness Act (HR 1330), if passed, would allow for income based repayment for both federal and private student loan borrowers. Here is the petition and some information on the bill: http://signon.org/sign/support-the-student-loan-6

    • livelifeworryfree profile image
      Author

      Princess Clark 4 years ago from The DMV

      Shaymarie thanks for sharing. Surely I will pass this petition on not only on here but my other pages as well. Private student loans are often the hardest to repay for many people, especially professionals with advanced degrees. Thanks for the invaluable tip. We (the readers and I) are very grateful. Onward!

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