Student Loan Consolidation Info

Student Loans 101

Student Loans 101

What do you need to know about student loans? When are you ready to get a loan? Should you consolidate your loans? What is deferment and forbearance? What are the basics of student loans? Deciding on, receiving and paying for a student loan can seem like a scary task, but don't worry Ė once you know the basics of student loans, you should be just fine.

The first thing you will learn about in Student Loans 101 is how to pick a lender. Itís not very difficult; the most important considerations in choosing a lender are payment term and interest rates. How much you pay each month on your student loan is dependent on these two factors alone. If your payment term is shorter, your monthly payments will be larger. If your payment term is longer, your monthly payments will be smaller. Same thing with the interest rate, the lower the rate, the more money you will have in your pocket at the end of the month.

If your payment term is longer, however, you will pay more total interest over the life of your loan. Check if your lender offers flexible repayment options (including deferment, forbearance, no pre-payment penalties or total/partial cancellation under certain circumstances). You will also want to check if your lender offers borrower benefits, which are discounts or credits awarded dependent on your good standing with the lender and your prompt payments. Having your payments made automatically each month can give you a discounted interest rate form some lenders. The most important thing for you to remember is that you want your student loan to pay off for you, not break your bank.

That brings us to the next topic in Student Loans 101: Deferment and forbearance. Deferment is defined as the postponement of repayment for a set amount of time (usually about 36 months for federal loans; length of deferment terms for private loans varies widely). If you have a subsidized federal loan, no interest will accrue on your loan over the term of deferment. If your loan is unsubsidized, interest will accrue. If you fail to pay the interest accrued during your term of deferment, the interest will be capitalized (added back to your principal loan) at the end of the term.

Forbearance is defined as a set temporary period of months in which you as the borrower do not have to make any payments on your loan, are allowed to pay only the interest on your loan, or are permitted to pay less than originally agreed. Should you feel the need to defer or forbear your loan obligations, donít feel worried or ashamed: Deferment and forbearance are two very common, very effective ways to manage debt, and most lenders are willing to cooperate so your loan doesnít go into default, and they donít lose money. Remember, the last thing they want you to do is default, it's very expensive for them to chase down a non-payer.

The final, most important topic in Student Loans 101 is how to be smart with student loans. This is basically an accumulation of the previous two topics: You just need to be aware of your obligations, manage your debt, and donít allow yourself to get in over your head! Make your payments on time and in full. If you are not able to do this, please apply for deferment or forbearance. It makes it easier for your lender and for you. Student Loans 101 isnít a difficult course; it just takes a little smart thinking and practice.