Tag Archive for: interest

For undergraduates and graduates considering student loans to help pay for their education, finding a low interest rate loan is important. Understanding how rates are set and how they potentially change over time can help you decide which loan is best for you. Let’s take a closer look at what determines the interest rate on various types of loans.

Direct Loans

The largest student loan program in the United States is the Direct Loan Program and is offered directly through the federal government. The formulas for setting interest rates for the Direct Loan Program are determined by Congress. Currently, the interest rate is set as a fixed rate for all loans first disbursed on or after July 1 and by June 30 of the following year. So, any loan first disbursed during that one-year window will have the same interest rate for the life of that loan.

The interest rate is the index plus an add-on or margin. In the case of federal loans, the financial index used is the 10-year Treasury note auctioned at the final auction held prior to June 1. That index is then used for new loans first disbursed in that following July 1 – June 30 timeframe.

The following chart represents the interest rate calculations for federal Direct Loans first disbursed on or after July 1, 2017 and before July 1, 2018.

Borrower TypeIndex (10-Year Treasury Note)Add-On (margin)Fixed Interest Rate
Direct Subsidized LoansUndergraduate Students2.40%2.05%4.45%
Direct Unsubsidized LoansUndergraduate Students2.40%2.05%4.45%
Direct Unsubsidized LoansGraduate/Professional Students2.40%3.60%6.00%
Direct PLUSGraduate/Professional Students and Parents of Dependent Undergraduate Students2.40%4.60%7.00%

Private Loans

For private student loans, the interest rates will still be based off of a financial index (although the exact index may vary by lender) plus a margin. However, other factors will also go into determining the interest rate on private student loans. The borrower’s credit score (or cosigner’s credit score) is a determining factor in the interest rate assigned to a private student loan. A high credit score may translate to a low interest rate. Another factor that can determine the interest rate on a private student loan is the length of the repayment term. Typically, a longer repayment term means paying a higher interest rate.

Fixed Interest Rates

Private student loan lenders will usually set their fixed interest rates prior to July 1 for the upcoming school year. That fixed rate will remain constant for the life of the loan. Lenders may adjust their fixed interest rates each year for new loans or even during the year if there is a dramatic change in market conditions.

However, once you’ve received your loan, your fixed interest rate for that specific loan will remain the same until the loan is paid in full. Your monthly payment will also remain constant for the duration of your repayment term.

Variable Interest Rates

When private student loan lenders set their variable interest rates, they may use a different financial index. Some lenders will use the 1-month LIBOR (London Interbank Offered Rate) where the variable interest rate will fluctuate monthly based on changes (up or down) in the 1-month LIBOR. Other lenders may use the 3-month LIBOR and adjust their variable interest rates quarterly (every three months).

Finally, other lenders may use the Prime Rate as their index and adjust their variable rates monthly. The bottom line is that your variable interest rate will likely change each month or quarter and your monthly payment will also go up or down based on your rate increasing or decreasing.

So, is any particular type of index better than another when evaluating interest rates from different lenders? You really need to know what the index rate is as well as the margin being added. For example, if you see an offer for an interest rate of “Prime + 1.5%” that might sound pretty good compared to an interest rate of “1-month LIBOR + 4.50%.”

Visually, it just looks like the first rate would be lower. However, if the Prime Rate is 4% and the 1-month LIBOR rate is 1%, both rates would equal 5.50%. It’s always a good idea to look for a lender’s Application and Solicitation Disclosure to see the true interest rate calculations.

For more information on student loan options and other helpful resources, please visit U-fi.com.

At the end of each year, I review my personal finances to see how I’m progressing towards my goals. I also take stock to see if I need to make any course corrections. I refer to this annual ritual as getting my financial house in order. It has proven to be a worthwhile exercise over the years. It’s helped me navigate the inevitable peaks and valleys, and also review my financial goals annually. It especially helped when it came to handling student loan debt.

Student Loan Debt

While I am no longer handling student loan debt, there was a time when I did. While studying for my bachelor’s degree, I borrowed money to help pay for tuition, fees, and housing expenses. Fortunately, I was able to work part-time in school, and full-time during the summers. When I graduated, I had what I considered a modest level of debt.

The Realization of Repayment

After graduating, I remember receiving my student loan statement and payment slips in the mail. It had been several months since graduation. I hadn’t thought much about handling my student loan debt. Because I deferred my principal and interest payments while in school, I didn’t know exactly how much I owed. I didn’t even know when my payments were due. I can still remember looking at my loan statement and seeing how much I owed and the monthly amount due. Then, I counted the number of payment slips. I realized it was going to be quite some time before I could pay my loans off in full.

Reality set in. Having taken some finance classes while in school, I knew the high interest rates on my loans would cause interest to accrue rapidly on the remaining principal balance. The longer it took me to pay off my loans, the more it would cost. So, I sat down and developed a plan. I set up a monthly budget to manage my finances and pay off my student loans as soon as possible. This was the start of getting my financial house in order.

Discovering Repayment Options

Since that time, student loans, both federal and private, have greatly evolved. There are now many more repayment options available to students and parents to help them handle student loan debt. These include various income-driven repayment plans, federal loan consolidation, and private student loan refinancing. Each of these options has distinctive features and eligibility requirements, so it makes sense to compare them to one another to see if any meet your needs. You can learn more about federal student loan repayment plan options by visiting the Department of Education’s Federal Student Aid website. Learn more about student loan refinancing and loan consolidation, and which one may be right for you.

Making a Repayment Plan

Creating a solid financial plan and sticking to it is an important part of any person’s financial well-being. If you haven’t already done so, I highly encourage you to review your financial situation, create a plan, and set a monthly budget. If you need help getting started, U-fi offers several tools including budgeting strategies, worksheets, and financial wellness tips.

Once you’ve created your plan, be sure to review it at least once per year, as your goals and/or financial situation may change. This way you can make any needed adjustments to ensure you stay on track. By keeping your financial house in order you can increase the likelihood of achieving financial success.

It’s that time of year again. That is to say, it’s time to gather all your paperwork, W-2’s, receipts, statements, and related documents and work on your tax forms. Consequently, here are a few key education tax benefits to help you get the most possible deductions. You can find more information in IRS Publication 970 Tax Benefits for Education. This includes all the information you need, including sample forms and worksheets.

Education Tax Benefits

Certain tax benefits are available if you are saving for or have paid for educations costs. In general, most benefits apply to higher education. They may be allowed for you as a student, or a member of your immediate family who was a student. Usually, you can’t use the same qualifying education expense for more than one tax benefit. Certain benefits may be ruled out based on your income. Here are the education-related items from Publication 970:

  • Scholarships, Fellowship Grants, Grants, and Tuition Reductions
  • American Opportunity Credit
  • Lifetime Learning Credit
  • Student Loan Interest Deduction
  • Student Loan Cancellations and Repayment Assistance
  • Tuition and Fees Deduction
  • Coverdell Education Savings Account (ESA)
  • Qualified Tuition Program
  • Education Exceptions to Additional Tax on Early IRA Distributions
  • Education Savings Bond Program
  • Employer-Provided Educational Assistance

Below are three general education tax benefits. Be sure to review IRS Publication 970 for all possible benefits. Seek help from a licensed tax professional to take full advantage of education tax benefits.

Student Loan Interest Deduction

Is your modified adjusted gross income less than $80,000 (or $160,000 if filing a joint return)? Did you also pay interest on a qualified student loan for higher education expenses? If so, you may be able to reduce the amount of your income subject to tax by up to $2,500. If the amount of interest you paid on your student loans in 2018 was $600 or more, you should receive a Form 1098-E (Student Loan Interest Statement) from your lender or loan servicer. Form 1098-E will provide you with the amount of interest you paid. The Student Loan Interest Deduction Worksheet in the Form 1040 or Form 1040A instructions can assist in calculating your deductions.

Student Loan Cancellations and Repayment Assistance

Loan Cancellation

If a loan you must repay is forgiven or cancelled, you must include the amount forgiven in your gross income for tax purposes. There is an exception to this rule in instances of a loan made by a qualified lender. This exception assists you in attending an eligible educational institution. Lenders make these provisions based on particular work capabilities.

Repayment Assistance

If you receive student loan payments from any of these sources, the payments are not considered taxable:

  • Scholarships, Fellowship Grants, Grants, and Tuition Reductions
  • The National Health Service Corps (NHSC) Loan Repayment Program
  • A state education loan repayment program eligible for funds under the Public Health Service Act
  • Any other state loan repayment or loan forgiveness program intended to provide for the increased availability of health services in underserved or health professional shortage areas (as determined by such state).

You may not deduct interest paid on student loans if those payments came through these programs.

Tuition and Fees Deduction

Did you pay qualified education expenses during the year for yourself, your spouse, or your dependents? If so, you may be able to reduce the amount of your income subject to tax by up to $4,000. As with as the student loan interest deduction, you claim the tuition and fees deduction as an adjustment to your income. Therefore, you are not required to itemize in order to claim this benefit. In order to claim the deduction, your modified adjusted gross income can’t be greater than $80,000 (or $160,000 for joint returns). Subsequently, the educational institution may provide you with Form 1098-T. This form provides payments received or billed for qualified education expenses. To claim the tuition and fees deduction, complete Form 8917 and submit it with your Form 1040 or Form 1040A.

We hope you found the above information helpful. We encourage you to be aware of all the possible deductions related to education tax benefits. There are a number of education related tax benefits available. If you think you might qualify, consult the IRS website or Publication 970 for more detailed information and guidance.

Does your January credit card statement have you feeling blue? Find out how personal loans could provide credit relief.

It Happens to the Best of Us

The holidays have come and gone. You may be feeling a bit relieved that all the seasonal hustle and bustle is over. Sure, it may be a bit cold outside. Sure, work is back in full swing. But, things are looking good with your New Year’s resolutions. You’re feeling optimistic and energized.

Then, you receive your January credit card bill. Whoa, the new balance is much higher than you expected. As you go down the list of purchases on your statement you ask yourself, “Did I really spend that much?” You also notice the available credit on your credit card is pretty low. There are some big purchases coming up in your future. You were planning on using your credit card to pay for them. Now, you no longer have enough available credit to pay for everything as planned.

With average credit card APRs over 16%, and many exceeding 20%, you know if you don’t pay your balance in full you’ll be hit with a hefty finance charge, which will be added to your outstanding credit card balance. And even worse, if you’re late making the minimum payment that’s due, you could be hit with a penalty APR, which can be as high as 29.99%.

Personal Loans Could Provide Credit Relief

This is where personal loans could provide credit relief. Unlike a credit card, which is a revolving line of credit, a personal loan is an unsecured loan that doesn’t require any collateral, such as a car or house. Personal loans come with a specific repayment period, usually between 1 and 7 years. Fixed interest rates are more common than variable interest rates, and some lenders will offer you a choice.

The main reason people take out personal loans is to pay off existing debt, such as high interest rate credit cards or loans. Other common reasons include making major purchases, for home improvement projects, for special occasions like weddings, to take a vacation, and to pay off medical bills.

Personal loans can range from as little as $1,000 to as high as $100,000. APRs vary widely among lenders and are based on the borrower’s (or co-signer’s) credit history, annual income, repayment term selected, and type of interest rate chosen. Some personal loans even come with money saving automatic payment discounts and loyalty discounts.

Tip: Some lenders charge upfront fees, which add to the total cost of the loan, so be sure to take that into account before choosing a lender.

A really nice feature for personal loans is how quick and easy the process can be. If you submit a completed loan application, you can receive a decision in a matter of minutes, and if approved, receive funds in your bank account as soon as the next business day, provided your application has no typos or errors.

Now that the holidays are over, you may be suffering from the post-holiday credit card blues. If so, check out a personal loan for credit relief from U-fi’s partner. It just may be what the doctor ordered.

If you have student loan debt, you have most likely heard the terms “student loan consolidation” and “student loan refinancing”. Although they sound similar and are often used interchangeably, they are actually two different programs. Therefore, understanding these programs and their key differences can help you make better student loan repayment decisions.

Student Loan Consolidation

Student loan consolidation lets you combine one or more eligible federal student loans into one new Direct Consolidation Loan. As a result, the U.S. Department of Education becomes the new lender. As the administrator of the program, they use companies such as Nelnet to originate and service the loans.

Student Loan Refinancing

Student loan refinancing is offered by private (non-federal) lenders to allow student loan borrowers to refinance one or more federal and/or private student loans into a new private student loan. Consequently, the lender of the new private student loan will be a bank, credit union, or other financial institution. Either the lender themselves or entities like Firstmark Services, a division of Nelnet, handles origination and servicing.

Which is Better?

Both programs offer many benefits. These benefits include simplifying your monthly student loan payments, locking in a fixed interest rate, and lowering your monthly payments. However, there may be some drawbacks as well. For example, if you extend your repayment term, you could increase the total cost of your loans. Therefore, you may forfeit current and potential future federal student loan benefits. Also, any incentives attached to your current loans, such as interest rate reductions for automatic payments, are lost.

Comparing Options

The table below provides a side-by-side comparison of several important features of student loan consolidation and student loan refinancing.

Student Loan ConsolidationStudent Loan Refinancing*
LenderU.S. Department of EducationBanks, Credit Unions, and Financial Institutions
Credit Check RequiredNoYes
Upfront FeesNoneMost lenders do not charge any upfront fees
Interest Rate TypeFixedFixed and variable rate options are offered by most lenders
Interest RateWeighted average interest rate of the loans being consolidated, rounded up to nearest one-eighth of 1%Varies. Factors may include the borrower’s and/or cosigner’s credit history; repayment term; interest rate type; highest level of education; and current market conditions
Repayment PlansStandard, Graduated, Extended, and various Income-Driven Repayment plansStandard Repayment
Repayment Term10 to 30 years depending on the amount being consolidated5 to 20 years
Allowable LoansMost federal student loans are eligible. Private loans are not eligibleFederal and private student loans are allowed by most lenders
Interest Rate ReductionRate reduction for automatic paymentsRate reduction for automatic payments. Some lenders offer an additional rate reduction to existing customers with a qualifying account
Ability to consolidate or refinance multiple timesGenerally no, unless additional federal loans are includedYes
Loss of Federal BenefitsSome benefits may be lostYes, including potentially qualifying for Public Service Loan Forgiveness on federal loans
When can you consolidate or refinanceAfter graduation, leaving school, or dropping below half-time enrollmentAfter graduation, leaving school, or dropping below half-time enrollment. Some lenders allow refinancing while in school

* Features represent those of the largest and/or most common private student loan refinancing programs. A specific lender’s features may differ, so be sure to read the program details carefully.

Choose the Right Option for You

While there are similarities between student loan consolidation and student loan refinancing, they are different programs with unique features. Firstly, if you are interested in consolidating or refinancing your current student loans,determine what you want to accomplish. Your goal may be to lower your monthly payments, lock in a low fixed interest rate, and/or lower your overall cost of repaying your loans. Next, compare the federal government’s Direct Consolidation Loan program to U-fi and other private lender programs once your goal has been set. Then, decide if consolidation or refinancing is right for you based on your financial goals and circumstances.

Want to reduce your monthly payments? Learn how to make it happen with U-fi.

At some point, most of us say, I wish I knew then what I know now. That same sentiment holds true for some college students regarding the financial aid process. After learning about the financial aid process, some students look back and wish they made different decisions.  Being better informed from the start changes how students approach their financial aid and funding options.

Here are five things students wish they knew about the financial aid process while planning for college.

1. It’s Never Too Early to Start Planning and Saving for College

College-bound students and their families often wait to think about the admissions process and financial aid options. Many times, they wait until the student’s junior or senior year of high school. However, students should research schools and possible career options early. Getting started in high school or junior high gives them an idea of which schools are the best fit. Heather, a junior in college, said she drastically underestimated all the costs associated with her education. She didn’t know she needed to rely on student loans as much as she did. Even if you expect a scholarship, keep in mind the total costs you and your family may incur. These costs can have an impact on your long-term planning and financing.

2. Know Your Deadlines and Don’t Miss Them

Braxton is in his freshman year and says he missed out on some state grant money because he waited too long to complete his FAFSA (Free Application for Federal Student Aid). He said if he’d been more aware of his state deadline, he would have applied sooner and likely received money from his state grant program. He also said there were some scholarships that had very early deadlines that he missed. It takes some organization and research to be sure you know all the relevant deadlines for various scholarship and grant programs.

3. You Don’t Have to Figure It All Out on Your Own

The financial aid process can often be confusing to first-time students. Rather than trying to do it all on your own, you can find help. Your high school counselors are great resources. If you have a college or university nearby, they may offer free FAFSA workshops or presentations. They can also help you understand the financial aid process better. If you speak with your high school counselor or someone from a financial aid office, don’t be afraid to ask questions so you’ll be certain you know what you need to do. Although you’ll be doing your first FAFSA as early as October of your senior year, it’s never too early to begin learning everything you need to know. Federal Student Aid at the U.S. Department of Education has a FAFSA4caster that you can use to understand your options for paying for college.

4. You Don’t Have to Accept the Full Loan Amount on Your Award Letter

Once your financial aid application is finalized, your financial aid office sends you an award letter. Your award letter may show different types of financial aid, such as scholarships, grants, and student loans. Colleges usually provide award packages to cover your entire cost of attendance (COA). Your COA includes tuition, books, supplies, housing, etc. However, only borrow what you need, even if you were offered a higher amount. You don’t need to accept the full amount awarded.

Another college student said she assumed she should take the amount offered. At first, she thought the extra money could be a cushion if needed. She admitted she spent frivolously on things she really didn’t need. She forgot her loan was unsubsidized. That means interest accrued on her loan while she was in school. Student loans are a great resource to help pay for school as long as you understand the terms and conditions and only borrow what you need.

5. Don’t Assume You Won’t Qualify for Financial Aid and Skip Completing the FAFSA

Some students and families believe that their income may be too high to qualify for any type of financial aid and simply do not complete the FAFSA. Although you may not qualify for grants, you still need to complete the FAFSA to determine your eligibility for student loans and college work study. Some programs (such as unsubsidized student loans) are not need-based and do not have an income limitation. Also, the FAFSA is free to complete, and you could qualify for some other types of aid. One thing families forget is that if they happen to have a higher income, they may also have multiple children attending college, which is a big factor in determining financial aid eligibility. Factors such as your family income, household size, and the number in your family attending college all help determine your financial aid eligibility.

By planning ahead and thinking about the cost of college early, many of these common scenarios can be avoided. By starting your planning early, you can avoid the “I wish I knew then what I know now” feeling down the road.

With the numerous private student loan repayment options available, selecting the right one can seem a bit overwhelming. However, with a little bit of knowledge, you can make a more educated decision. In Part I of this article, we covered repayment plan options. Now, we’ll review interest rate types and repayment terms to find the best student loan option for you.

Interest Rate Type

Borrowers taking out private student loans or refinancing their current student loans have a few interest rate options.

  • Variable: Variable rate loans have an interest rate that can fluctuate over time as the rate index, such as the Prime Rate or LIBOR, goes up or down. Variable rate loans typically come with lower starting interest rates than comparable fixed rate loans. However, they come with greater risk, since rates may rise in the future. Most variable rate loans have a cap that places a limit on how high the rate can rise.
  • Fixed: With a fixed rate loan, once the rate is set, it does not change for the entire repayment period. Fixed rate loans normally have higher starting rates than variable rate loans. This is because the lender takes on the risk of interest rates fluctuating over time.
  • Hybrid: Another less popular option is a hybrid rate loan. With a hybrid rate loan, the interest rate is usually fixed for a period of time. It then switches to a variable rate for the remainder of the loan period.

Tip: If you intend to pay off your loans in a short period of time, consider a variable rate loan. If you plan to take longer to pay off your loans or prefer stable, predictable payments, a fixed-rate loan may be the best choice. When deciding which type of rate to choose, use the lender’s loan repayment calculator to estimate the savings between a variable rate and a fixed rate loan. Also decide whether the estimated savings is worth the additional risk of a variable rate loan.

Repayment Term

Another important item that determines the interest rate you will be charged is the repayment term you select. Most lenders offer private student loans and refinance loans with repayment terms between 5 and 15 years. Some lenders offer repayment terms as long as 20 years.

When determining interest rates on private student loans, remember that the shorter the repayment term, the lower the interest rate. This is because the lender takes on additional risk by allowing you to repay your loan over a longer term.

Tip: Your monthly payment amount is determined by several factors. These include the principal balance of the loan when you start making payments, the interest rate, and the repayment term. Shorter repayment terms come with lower interest rates, but higher monthly payments. Choose a repayment term with a monthly payment you can afford, especially when you are first starting out.

Choosing Your Best Option

Choosing the repayment option that best fits your current and future needs can be a bit tricky. But, with a little planning and thought, you can zero in on the loan terms that are best for you. If you find your financial situation changes down the road, and your current repayment terms no longer meet your needs, you may be able to work with your lender to modify your repayment terms. If that isn’t an option, then you can look at refinancing your student loans and replace them with a new loan that is a better fit.

Tip: Most private student loans do not have any pre-payment penalties or fees. If down the road you can afford to pay more than the minimum each month, you can pay down your loan faster without being charged any pre-payment fees. This reduces your overall cost of borrowing in the end.

Understanding the nuances of private student loans can make a big difference when deciding which one is right for you. Making the right choices when taking out student loans can have a strong impact on positioning yourself for a bright financial future.

If you borrowed student loans to help pay for college, you may not be required to make any payments until after you graduate or drop below half-time enrollment. That sounds like a pretty good deal; no payments and no worries while you focus on your studies. But remember, if you take out a federal Direct Unsubsidized Loan, a federal Direct PLUS Loan, or a private loan, interest accumulates during those months (or years) you’re in school and not making any payments. Here are some ways you can save on your student loans while you’re still in school.

Accruing Interest

Interest that accrues on your student loan will typically be capitalized when you begin repayment. That means any accrued interest during those months you are not making payments is added to the original principal amount of your loan. For instance, if you borrowed a $15,000 student loan with an interest rate of 6% as a freshman and made no payments for the four years you were in school, plus your grace period, 51 months would have passed. In this scenario, when you begin your repayment period, you would actually have a balance of $18,825 when you start repaying your loan 51 months later. That’s because $3,825 in interest (also known as capitalized interest) would have accrued during those 51 months and was added to your original loan amount.

In-School Payments Can Help

Now, let’s say you have a part-time job while you’re in school, working 15-20 hours a week to help with some of your expenses. If you could simply pay around $75 a month toward that $15,000 student loan, you could actually pay all the accruing interest (remember, that’s $3,825 total that would have been added to your loan when your first scheduled monthly payment is due). If you’re able to pay $75 towards your student loan’s accruing interest, the total cost you could ultimately save over the life of a 10-year repayment period would be nearly $1,300.

Example

Paying Interest While In School (No Capitalized Interest)Fully Deferred Payments While In School – No Payments (Capitalized Interest)
Original Loan Amount$15,000$15,000
Interest Accrued During In School and Grace Period (51 months)$3,825$3,825
Interest Paid During In-School and Grace Period$3,825$0
Loan Amount When Entering Repayment$15,000$18,825
Number of Months of Repayment120120
Monthly Payment$166.53$209
Total Interest Paid on Loan (including any payments during in school and grace period)$8,808.60$10,080
Total Paid on Student Loan (original loan amount plus interest)$23,808.60$25,080

As you can see from this example, making interest payments while you’re in school and during your grace period can help you save on your student loans down the road. Plus, making payments during your in-school and grace period also gets you in the habit of making payments on your student loan and better prepares you for successful repayment. Remember, this is just an example of borrowing one loan during your freshman year of college. Imagine what the capitalized interest could look like if you borrow each year of college, or what your savings would be by making continued interest payments while you’re in school. You can learn more ways to save on your student loans and get additional helpful information by visiting our student loan resources.

If you graduated from college this year, you may realize just how much student loan debt you have. With the average student loan debt at around $29,000 per student, it can be overwhelming to see that number and you may wonder how you are going to pay it back. Well, take a deep breath: you have several options when it comes to repayment. Don’t hesitate to give your student loan servicer a call because they will help you work through your options. Or, you can also follow these 4 steps to get ready for student loan repayment. It’s important to investigate your options and be prepared. It’s equally important to know a few things you should avoid.

Deferment & Forbearance

Deferment and forbearance allow you to temporarily postpone making payments or can reduce your payment for a period of time. Sounds great, right? So, what’s the problem? Your student loans continue to accrue interest. That interest could cost you thousands of dollars a year, depending on your student loan debt. Don’t delay the inevitable. You will have to pay back your student loans whether you pay them now or pay them later. Deferment and forbearance are great options if you have no financial means when you enter repayment. However, you shouldn’t use them as a way to delay paying your student loans. If you do need to go this route, try to at least make interest payments on your loans. If you don’t, the interest will capitalize leading to higher student loan debt and higher monthly payments once your deferment or forbearance expires.

Don’t Miss Payments

Make your payments every month and on time. If a loan payment is not made by the due date, the loan becomes delinquent until payment is received. Depending on your servicer or lender, this delinquency can affect your credit report as a negative mark, therefore negatively affecting your credit score. In addition, when you miss monthly payments, your payment will double, then triple, and continue to snowball which may put you in a situation that’s difficult to catch up on.

Avoid Scams

We’ve all heard the saying, “if it sounds too good to be true, it probably is.” It may seem enticing to pay a company to handle the stress of your student loans and promise you low payments or loan forgiveness, which are why these companies exist, but you’ll be wasting your money. Student loan servicers and lenders will not charge fees for finding a repayment plan that fits your needs. The U.S. Department of Education offers several student loan repayment plans and loan forgiveness, cancellation, or discharge for certain circumstances, but all of their services are free of charge.

Being prepared for repayment and understanding what you should avoid are two big steps to successfully paying off your student loans. Just remember, your student loan servicer is there to help you. If you need to adjust your repayment plan or just have questions about your student loans, give them a call (844.307.3451).

Taking out private student loans or refinancing current student loans is a popular option for students. When considering loans or loan refinance, many borrowers initially focus on either the interest rate of the loan or how much their monthly payments will be. This makes sense because they determine how much a borrower pays back over the life of a loan. However, the interest rate and expected monthly payments are determined by several factors. These factors include credit history, current financial situation, future earnings potential, lender costs and desired profit margin, and selected loan repayment options.

Let’s take a look at the repayment options available. Knowing your options can help you when deciding to take out a student loan or to refinance your existing loans.

Repayment Plans

When it comes to private student loans and student loan refinancing, lenders may offer more than one repayment plan. Below are the most common plans you will encounter:

Standard

Standard repayment is far and away the most common repayment plan for private student loans. In Standard repayment, your monthly payments are a set amount. That means you pay off your loan in equal installments over the remaining term of the loan.

Interest Only

With an Interest Only repayment plan, you begin making interest-only payments over a short period of time. Later, you revert to Standard repayment. With interest-only plans, you pay more in interest than with a Standard repayment plan.  Also, your monthly payments are higher than a Standard repayment plan when your loan reverts to full principal and interest payments.

Partial

With a Partial repayment plan, your initial payment amount is set for a period of time. It then reverts to Standard repayment for the remainder of the loan term. The total cost of a Partial repayment plan will also be higher than with a Standard repayment plan.

Deferred

Deferred repayment is when you start making payments at a specified time in the future. Most lenders let you defer payments while you are in school and for six months after you leave school. Deferred repayment is the most costly, since interest accrues while you are deferring your payments. That interest is then added to the principal balance of your loan before you enter your repayment period.

Graduated

While not very common for private student loans, Graduated repayment starts with lower monthly payments that increase over time. With Graduated repayment, you pay more for the loan than with Standard repayment. This is because interest accrues on a higher principal balance over a longer term.

Tip: When lenders offer a choice of repayment plans, they generally charge lower interest rates for Standard and Interest Only repayment. They charge a higher interest rate for Deferred repayment to compensate for the added risk. Choosing to make full principal and interest payments under a Standard repayment plan is the least costly repayment plan available. If you cannot afford to make full principal and interest payments, consider paying at least some amount each month. Whether you make interest-only payments or partial payments, it reduces your overall cost of borrowing.

By exploring your repayment plan options or considering loan refinance, you can find the best option for your financial situation. Whether you choose  In Part II of Choosing Your Private Student Loan Repayment Options, we’ll discuss interest rates and repayment terms. These also affect your total amount paid.