Repaying student loans

Just like a mortgage loan or car loan, student loans need to be repaid to lenders. How you pay depends on a number of things:

  • You may be expected to begin repaying your federal loans if you graduate, drop out of school or fall below a certain number of enrollment hours.
  • You may be granted a period of time between when you stop attending a college or university and when you are expected to start repaying the loan.
  • You may also have either six or nine months to begin repayment of your loan depending on what kind of federal loan it is.
  • Parents of students also have different repayment timelines, and with some loans they are expected to start repaying the loan within 60 days of its disbursement.

Federal Stafford student loans have three repayment options:

  • Standard, with a fixed payment throughout the term of the loan
  • Graduated, which has low initial payments that rise over time (hopefully in line with your salary)
  • Income-sensitive, where the payments are calculated as a percentage of your income.

Choose a payment schedule that fits your budget and doesn’t cost more than it has to. For example, if you can afford to pay off your loan over 10 years, don’t extend it to 15 just to lower your payments. You’ll end up adding hundreds and possibly thousands of dollars in interest to the cost of the loan.

When you know your schedule, it’s important to make your student loan payments a financial priority. Repayment should be the full amount and on time, or you risk hurting your credit score. If your credit score drops, you might be charged a higher interest rate or have difficulty securing other lines of credit.

Remember that repaying a loan is serious business. Once you begin repayment of your student loans, you may need to take a serious look at your income and spending patterns and work out a monthly budget so that you can manage your debt properly. Not paying back your student loans, otherwise known as defaulting, can really hurt your finances. If you default on a federal loan, you may not be eligible to receive other federal money and the lender may choose to take legal action against you.

If you are having trouble repaying your loan, there are options available to you. You may be able to choose deferment, which suspends your payment due to certain situations. You may also be able to choose forbearance, which can delay or lower your payment amount. While neither deferment nor forbearance is a quick fix that will make your student loan debt disappear, it can be a good alternative to defaulting.


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