What you need to know when the time comes to repay your student loans
If you are a graduate student who is trying to find an easier way to repay your student loans, do not worry because you are not alone. Many alumni’s have faced the harsh aftermath of loan payments in the aftermath of attending an expensive school. According to CBS News, studies report that undergraduate seniors at four-year institutions carry loans averaging about $22,500 for each of the four years.
There are solutions to repaying your student loans, but you must be willing to hold on to your savings in order to reach this goal. This means spending your money frugally, and not on items such as clothing, cell phone apps or a midnight beer run. According to the University of Notre Dame, “If you live like a lawyer while you are in law school, you will live like a law student when you are a lawyer.”
Depending on the type of loan you have chosen to take, there are different options on how you can repay student loans. There are four programs that apply to most consolidation loan programs. One is the standard repayment plan which provides a monthly payment for a maximum of ten years. This option is best for you if you are unable to pay off your loans frequently and need more time without the worry of gaining interest. Another type of payment plan is the graduated repayment plan. This type of plan has a low initial amount for the first several years, and then continues to rise as interest increases. This typically happens after two to five years. The reasoning for this is once your income level rises, so do your payments. If you select this type of payment plan, make sure you are in a position where you know your income will increase. You do not want to end up paying more interest over the life of the loan due to not making enough earnings.
Extended repayment plan provides a fixed monthly payment schedule ranging from twelve to thirty years, depending on how much you borrowed. The monthly payments will be smaller than the standard repayment plan, but you will eventually be paying more interest over the life of the loan. The last type of the most common repayment plan is called the income contingent repayment plan. Monthly payments are based on the borrower’s income, family size and total loan amount and can be repaid for up to twenty-five years.
Committing to a repayment schedule may be tough, but it is vital if do not want to dig yourself into a deeper hole of debt. Stick to a payment agenda that allows you to take no more than 15 percent out of your monthly gross income. This may seem impossible for those with over thousands of dollars in student loans and low initial earnings, but consider the possibility of rising income within your field. Also, people with student loans can apply for deferment or forbearance, meaning loan payments can be temporarily suspended due to hardship situations, such as unemployment.
Graduate students may have a better chance at repaying student loans back, as they make more money and can afford more debt than an undergraduate, Mark Kantrowitz, writer and commentator on student loans stated.
“Once students are graduated and employed, they have a sufficient amount of income that will pay off their student loans. However, some people tend to live the extravagant lifestyle they dream of having once they graduate and they put themselves into more debt. So before you purchase a slice of pizza for $10 on your student loan money, ask yourself if you would still buy it at $20. Realistically, this is what it’s costing you,” Kantrowitz said.