Student Loan Considerations
When taking out student loans, you should carefully consider the type of loan and the long-term responsibility of loan repayment. This web page covers important considerations to take into account, including:
Loan terms and requirements
After you apply for financial aid, you may be offered one or more loans in your award package. Before you apply for loan funds, be sure to find out the following about each loan:
- Loan amount offered and maximum loan eligibility
- Co-signer requirements
- Interest rate
- Impact of your credit history on loan approval
- Rates and conditions of loan alternatives
- Repayment terms/grace period
- Repayment incentives
- Deferment/forbearance options
- Reputation of lender
The impact of your loans in repayment
Your educational loans must be repaid, which will cause your disposable income to be reduced while in repayment.
What happens if I do not repay my loans?
Your lender will follow the collection procedures required by law. If the lender cannot get your account current, your delinquency will be reported to all national credit bureaus. Defaulted loans will affect your credit rating and jeopardize your future ability to borrow funds for any purpose. You also will be liable for any collection expenses that are incurred.
How should I manage my loan portfolio?
- File your financial records. You should keep all documents in one place for easy reference. Some students keep a separate file folder for each loan type, and in some cases, a separate file for each lender if more than one lender is used for a particular loan. Keep copies of your Financial Aid Award Notice, loan applications, promissory notes, disclosure statements, and all of your correspondence with your school and lender(s).
- Keep a cumulative record of your loan debts. This type of record keeping also enables you to estimate your projected debt level and monthly payments. Keeping this record up to date is important. A spreadsheet can be very useful for maintaining this information.
- Inform lenders any changes in your name, address and/or registration status. This must be done in writing. Some lenders allow such changes to be made on their web sites.
- Confirm all of your telephone conversations with your lenders or school with a follow-up letter or e-mail.
What should I do if I am experiencing difficulty repaying my loan?
The most important action to take is to contact your lender quickly before you go into default. Your lender may be willing to offer you a "forbearance" period under certain conditions. To qualify, you must demonstrate that you are willing to make the loan payments, but you are unable to do so because of extraordinary circumstances. You also may qualify for a deferment.
What if my monthly loan payments are not manageable?
You should contact your lender regarding a Federal Consolidation Loan to reduce the burden:
- It stretches your payments over a longer period and reduce your monthly installments into one manageable monthly repayment. The total amount you must repay increases, however, because of the extended repayment period.
- It fixes the interest rate on the loans you consolidate. The rate is equal to the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest 1/8 of one percent and capped at 8.25%.
- NOTE: You must be in repayment or grace period to consolidate your loans.
You can consolidate any portion of your Federal Loan portfolio (for example, Federal Stafford Loan, Federal Perkins Loan, Federal Grad PLUS Loan), except Federal Primary Care Loans (PCL). You should consider carefully whether to consolidate loans with low fixed interest rates, such as the Federal Perkins Loan. Unfortunately, institutional and private alternative loans are not eligible under the Federal Consolidation Loan program. However, private loan consolidation programs for these loans currently are available from a limited number of organizations.