Advice For Students With Prior Student Loans
If you return to school at least half-time after your six month grace period has ended and your Federal Stafford Loans have entered repayment, you may qualify for a deferment. A deferment is a postponement of repayment under various specific circumstances, and returning to school at least half-time meets the criteria for a deferment. In most cases, you are not just granted a deferment automatically; you must formally request one through the procedures your loan holder has established. Often, you need to complete a deferment form. You will need to provide documentation showing you are qualified for the deferment you are applying for. Please make sure all your paperwork is in order and that the holder of your loans receives the required forms. Keep up with your student loan payments until you are certain that your in-school deferment has been approved by your lender.
- For Federal Subsidized Stafford Loans you are not required to pay principle or interest during deferment.
- For Unsubsidized Stafford Loans and Grad PLUS Loans, you can postpone paying principle, but you are responsible for the interest. You can pay the interest during the deferment period, or the loan holder can capitalize the interest when the deferment ends. Remember that capitalization will increase the loan balance.
Federal Loan Repayment
Borrowers of the Federal Student Loan Program may choose from several repayment options and should select the schedule that will keep the cost of repayment to a minimum. The availability of repayment plans will be dependent upon the type of loan program. Please keep in mind that there is no penalty for pre-payment on educational loans; therefore, it is advantageous to the borrower to repay a loan as quickly as possible.
- Standard Repayment Plan: The borrower pays a set amount throughout repayment. You will have a higher monthly payment; however, this plan has the least cost for the borrower.
- Graduated Repayment Plan: Payments start low and increase over time, usually every 18-24 months (addresses short-term cash flow problems in the early years of employment). Increases the total amount of interest paid over the standard repayment plan, but is generally significantly less than the interest paid with the extended an income-base repayment plan.
- Extended Repayment Plan: Payments are extended up to 30 years, depending on the amount of and type of loans that the borrower has received. This results in a lower, more affordable payment; however, it is very expensive in the long run if the borrower takes the full length of time to repay.
- Income-Based Repayment Plan: Payments are based on your income. It typically lasts 10 years for Stafford Loans or longer if you consolidate your federal loans.
- Loan Consolidation: A Consolidation loan combines several federal loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. This may reduce the size of the monthly payment by extending the term of the loan beyond the 10 year repayment plan that is standard with federal loans. Depending on the loan amount, the term of the loan can be extended from 12 to 30 years. The reduced monthly payment may make the loan easier to repay for some borrowers, however, by extending the term of a loan the total amount of interest paid is increased.
For help calculating your Stafford Loan Repayment you may refer to the following
"Loan Repayment Calculator" provided by Wells Fargo.