Repaying student loans:
Slow is OK, but never stop
What is the best way of paying off student loans after graduation?
Should I try to pay off as much as possible soon after graduation or should I
just pay the minimum? Thank you for your reply. -- Martine
Congratulations for planning ahead regarding paying off your
student loans. You are clearly way ahead of me at that stage of my life. I didn't
have a clue about financial matters. My, how things do change!
almost always recommend paying off a loan as soon as possible. Even a loan with
a low interest rate costs you money, and carrying a burden any longer than you
need to doesn't make sense. However, if you have other debts, it makes good financial
sense to put all extra money toward first paying off the loan with the highest
interest rate, while paying the minimum on the others. Once the higher rate loan(s)
is paid off, then, you can begin aggressively paying off your student loans.
more than one student loan, you might consider consolidating
your student loans. Consolidating will reduce your interest rate and decrease
your monthly payment. The money you save in interest charges can be used to increase
the monthly payment. Be aware that once you consolidate your loans you are not
eligible to consolidate again.
Anyone with a loan or considering
a loan needs to pay attention to the details of the agreement. Student loans are
no exceptions. One good reason to pay off your loan quickly is if you have graduated
repayment. This means payments are lower at the beginning of repayment and increase
at specified periods and in specified amounts over the term of the loan. A standard
repayment is when principal and interest payments are due each month in the same
amount throughout the loan repayment term. Check you agreement closely so there
are no surprises.
With that said, lets put this in context.
What are your goals over the near and long term? For example, will you need to
buy a car soon? Do you need to save for it, and how much will you need by when?
You will probably also need to build up a savings account at the same time. You
seem to be a good planner, so I recommend that you allocate some of your income
to building up an emergency fund that will eventually have enough money to pay
your expenses for three to six months. This will take time, but it is an essential
step in becoming financially secure. You will find that life on your own is full
of surprises and unexpected bumps. A savings cushion will keep bumps from turning
into mountains! Look at your spending plan to see how much you can afford to pay
to aggressively pay off your student loans while also building up your savings
account. If you do not have a spending plan, create one.
you are committed right now to paying off your student loans. Should that change
for any reason, please review the following information. Defaulting on a student
loan is different from missing a class or being late for an appointment. It is
often not excused, it will be noted in your credit report and it will not go away
A loan is considered delinquent if you do not make
monthly payments on time; even one missed payment can make your loan delinquent.
Default occurs when you miss a number (see your loan documents) of payments.
you are delinquent and default on your federal student loans, you may face these
- The federal government could withhold
- The Department of Education could claim your
- Your loan expenses could go up with the addition
of late fees and penalties.
- Your future ability to access
credit could be jeopardized because your loan defaults can be reported to all
of the national credit bureaus.
- You may be handicapped in
getting certain types of jobs, security clearances, licenses and even insurance.
you have a problem that affects your ability to make your payments in the future,
you can ask about deferment or forbearance. It is best to contact your lender
to discuss options in advance of them contacting you. A deferment allows the borrower
to postpone loan repayment for specified periods and under certain conditions.
A forbearance suspends or reduces payments, again for a specified time and under
certain conditions. In both cases, interest will continue to accrue on the loan,
making it bigger, and you must still repay the loan.
a very exciting time for you. If you develop a plan and stick to it, you will
enjoy these first years to the fullest and not at the expense of the future! Good
Debt Adviser, Steve Bucci, is the president of Consumer Credit Counseling Service
of Southern New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.