Student loans are used to pay for furthering education, but some people don’t understand exactly how they work. Before signing on the dotted line, make sure you understand all aspects of student loans.
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Student loans can be deferred for a few reasons. With subsidized loans, they are automatically deferred until after graduation and a grace period. That means you don’t have to start paying any money usually until six months past your graduation date. You can also request a payment deferral if you have a life event that prevents you from paying your loans. It’s in nobody’s interest for you to default on your loans, so most lenders will approve deferrals if you’re having financial difficulties. Just be aware that you will still accrue interest during those types of deferrals.
Student Loan Payments
Although many people wait to start making payments until after they’ve graduated and found a job, making payments before is beneficial. With most student loans, you don’t start paying interest until after you graduate. If you make payments when you’re in school, you bring down the amount you owe before you start getting charged interest. This technique can save you a lot of money over the life of your loan even if you only make small payments here and there on your loan before you graduate.
Income-Based Repayment Options
You can choose a repayment plan based on your income and your future income. If you aren’t making a lot of money now, but expect to in the future, you can do a graduated system in which your monthly payment increases over time to help keep your payments affordable for your current situation. It’s important to note that the longer it takes you to pay your loans, the more interest you will pay. If you can afford to pay more on your loans, you should pay as much as possible to limit interest from accruing.
Subsidized Versus Unsubsidized Loans
With government-subsidized loans, the interest is deferred until after the grace period. With unsubsidized loans, the interest starts accruing as soon as you take out the loan. While having only subsidized loans is ideal, some people need to take out a higher amount than is subsidized. While you shouldn’t ever take out more than you need, unsubsidized loans are a good option if you need more funding for college.
Student Loans and Bankruptcy
It’s important to know that you can’t discharge student loans if you declare bankruptcy. Although it’s possible in very specific situations, the likelihood is slim. If you’re having trouble financially, your student loan lender will almost always work with you, but you will need to eventually pay back those loans. Think carefully before considering bankruptcy, because it will stay on your credit report for at least seven years and you will still have to pay back your student loans.
Student loans have key differences from traditional loans, which is why it’s important for you to understand how repayment works and your options before applying for them.