Who Do You Owe?

The student loan program is actually a federally-backed funding of money to students who could not otherwise afford the costs of college.  The actual loan, however, is given through a private financial institution, and, like any normal debt, must be paid back in full or in the form of monthly payments.  The beauty of these loans is that interest is not charged on them until the individual is no longer a full-time student, either through graduation or dropping out of college prior to graduation.   And, the interest rates on these loans are typically much lower than a conventional personal loan.  If you have student loans, you must make arrangements for repayment upon leaving college.  If you have huge debt, however, you may want to explore options for repayment that will be less painful.

Paying Now

Certainly, if an individual has secured great employment and the student loan debt is not exorbitant, it would be wise to set up payment arrangements right away and to begin to chip away at that debt.  This debt does appear on one’s credit report, and regular payments will be reported just as with any other debt.  So, if payments are beginning immediately, it is important to make them on time in order to maintain a good credit score.

If the debt is substantial and there is still the desire to begin repayment, some individuals consider a consolidation loan.  This wraps all student loan debt into one large loan, and the payment is typically lower than the individual loan payments would have been.  A word of caution here:  the new interest rate is likely to be higher, so the debt will end up costing more.

Paying Later

Almost anyone can obtain a deferment on student loans.  Deferments mean that, for a period of time, no payments will have to be made, and, in most instances, interest will be suspended.  Deferments are automatic for those who enter military service or who go on to graduate school.  For other types of deferments, there will be more justification needed, but, in most all cases, they are granted.  Be certain to complete the proper forms, for no deferment will be granted without the correct application for it.

The reasoning for obtaining deferment is pretty sound.  It is anticipated that, as an individual progresses in his/her career, income will steadily increase, and the repayment will become much less painful.  If an individual enters a career with a relatively low initial salary but anticipates that advancement will occur quickly, deferring loans is probably a wise course.  Doctors, for example, enter their profession as interns and then residents.  Income is typically tiny compared to the anticipated income once these first career phases are over.  It makes sense to defer loan payments in this instance.

A word of caution:  A deferred student loan still appears on the credit report.  While there is no payment indicated, the total amount borrowed is shown.  In the past, potential lenders did not look at deferred student loans when analyzing an individual’s total debt, but this is no longer true.  It may be difficult to qualify for a mortgage loan, therefore, if the student loan debt pushes the total debt amount beyond what a lender will allow.

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