Do You Understand Your Student Loans?
For those considering higher education, student loans can be a convenient way to pay for school, but they can also ruin credit scores and cause financial harm if the borrower doesn’t follow the contract. It is important to evaluate and understand your loan options and choose one that fits your situation.
After agreeing to a loan, students should keep track of basic information about their loans including: lender’s contact information, balance, repayment status, and grace period for each loan throughout their education. It is also important to update your contact information with your lender as it changes throughout the years to ensure you receive repayment information on time. Ignoring your student loans may have serious consequences that can last a lifetime. If you choose not to make payments, your loans may become delinquent or default, which can have significant financial impacts on you and anyone who co-signed for your loan.
Tips for Keeping Student Loans on Track:
- Evaluate all of the repayment options carefully and explore the various loan forgiveness programs. – Payments on federal loans are automatically based on a standard 10-year repayment plan but have other options to choose from. Borrowers should keep in mind that extending the time of repayment will lower the monthly amount but cost more in interest. There are also many programs that will forgive some or all of a borrower’s federal student loans. Visit Federal Student Aid, an Office of the U.S. Department of Education or IBRinfo.org to learn more.
- Pay off the most expensive loans first. – When considering paying off student loans evaluate which loans have the highest interest rates as they will likely cost more over time. Also take into consideration federal loans vs. private loans as private loans not only have higher interest rates in most instances but also lack the flexible repayment options and other protections that federal loans have.
- Don’t Default! – If you choose not to pay your student loans and do not make arrangements with the lender, your loans may have serious consequences. Not paying can lead to delinquency and default. When a loan enters default the total loan balance becomes due, the borrower’s credit score is negatively impacted, and the total amount owed increases substantially. If a borrower defaults on federal loans the government may garnish the wages and seize any tax refund due to the borrower.
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