The Best Way to Pay Off Student Loans
College graduates who have received student loans will typically need to begin making payments on their loans within approximately six months from the time of graduation. In some cases, so much time has passed by the time this occurs that students will need to back track to figure out exactly how much money they owe, and to whom. Chances are the financial institution would have already sent some sort of notice, or perhaps the college had received something, however, this is not always the case. It is the student’s responsibility to make sure he/she knows exactly what has to be paid, and when.
Gather All Loan Documents
Once all of the paper work is in and the contracts are all out on the table for review, the student should pay special attention to what types of loans were taken out, not to confuse the grants from loans. Grants never need to be repaid; they are awarded for free by the federal government. With that being said, any award letters should be separated from loan contracts. It is very important to read the entire contract as well as any other letters or documentation that has been received, in order to make absolutely sure all the amounts are correct and that there are no errors. At this point a clearer picture of everything that will need to be incorporated into the student’s budget will emerge.
Student Loan Forgiveness Programs
There are programs which are federally funded, and backed by the government, called student loan forgiveness programs. Typically the loans these programs cover are the Perkins and Stafford loans, which are federal student loans. When a student enrolls in one of these programs, certain portions of their debt is able to be wiped off of their loan amount, as if it never existed. This is something that anyone with one of these loans should look into, especially if they are experiencing some sort of financial hardship or having trouble securing adequate employment in their field. This is a very effective method on how to pay off student loans fast by reducing the amount that will need to be paid.
Student Loan Repayment Programs
There are also programs which are called student loan repayment programs, and these are much more common than student forgiveness programs. In these types of programs a couple of scenarios can be realized. A student may actually receive additional funding which can be used to help pay down the loan, or an arrangement is made with the student’s employer for a specific amount of money to be paid straight to the lender. There is a small downside to using either of the above mentioned programs and that is whatever the amount is that is eliminated under either program, may still be consider taxable income by the federal government. However, that alone should never be the deciding factor on whether or not to use either program.
Student Loan Consolidation
If a student has taken out several loans and has a sea of loan documents and contracts, along with several separate payments, with varying interest rates, a very good step in helping to eliminate a lot of the stress associated with these bills is to consolidate them all into one. With a series of private loans this is an even smarter choice as the student will more than likely have established a better over all credit rating by the time he/she has graduated from college. This may mean lower interest rates could be available, and perhaps even by the original lender, in some cases. One should use caution when consolidating federal student loans because in many cases, this will turn a federal loan into a private loan. This is not a good thing because many privileges go along with federal loans which will be null and void should this occur.
Defaulting on a student loan is a very bad idea. Not only can this prevent a person from obtaining further funding for continuing education, but also will almost always go on a person’s credit record. A very bad thing to incur early in life is a bad credit score. This is why paying off student loans in a timely manner is extremely important, no matter which method a person chooses in doing so.