If you are unable to make payments on your Student Loan, you will go into default. Once you’ve reached this point, you can expect to go to court to get the balance of your loan repaid. The consequences can be disastrous, affecting your financial aid eligibility. The best way to avoid this scenario is to refinance your loan, which should be free of charge. But if you can’t afford to pay your loan in full now, you may want to consider taking out a second mortgage.
Interest rates
Undergraduate federal student loan interest rates will be at historic lows this year. The Federal Reserve recently lowered its benchmark interest rates, and a recent Treasury auction confirmed the decrease. Borrowers can expect to pay as little as two percent less than they do this year, if they qualify for the lower interest rates. While the new interest rates are a significant improvement over last year’s rates, they are still not the lowest available.
Repayment terms
The recent changes to the student loan program will help cash-strapped borrowers pay off their debts more quickly. The terms of national student loans are now 20 years, and the amount of interest students have to pay will be reduced. The previous program was fourteen years, and students began repaying their capital just two years after graduating. These loans put the borrowers under a lot of financial stress, especially when they didn’t make a lot of money while they were attending school.
Fees
Fees for student loans are financial costs imposed by the lender for the processing and management of your loan. These fees are generally attached to your federal, private, and regular student loan. They can also be associated with student loan refinancing deals. These fees can vary between 1% and 5%, and should be included in your repayment plan when comparing student loans. However, you should not be surprised to find out that they can be as high as 7% of your loan amount.
Extension options
If you are behind on your student loans and want to extend the grace period, there are a few options. The Reduced Payment option and Hardship option both postpone monthly payments for a short period. However, your loan balance will continue to accrue interest during the grace period. When the standard repayment schedule resumes, the interest will be added to the principal balance. This could increase the amount you owe each month and make it harder to keep up with your payments.
Co-signer requirements
When applying for a student loan, consider co-signer requirements carefully. This person must have the financial capability to support the loan payments if the primary borrower defaults on the loan. As a co-signer, you must have a good credit score, be 18 years or older, and show proof of income. A co-signer can also be a family member, friend, or employer.