Comparing Your Student Loan Repayment Options

Student loan repayment options come in four traditional forms: standard, extended, graduated and income based. Within these four forms, however, there are a number of flexible choices you can make to customize your loan. 

Repayment Options

First, elect the best general option for your repayment structure. Your particular lender may not offer all four of these choices, but you will typically find a variation of each.

  • Standard repayment: The most common form of repayment, this option provides a set monthly payment for the life of the loan. Interest rates are fixed, and the loan is not very flexible.
  • Extended repayment: This form is the same as a standard option, but the life of the loan is extended up to 30 years to make monthly payments lower. Interest tends to be higher.
  • Graduated repayment: Like an adjustable rate loan, the monthly payments on this option will be lowest in the beginning and get higher as the loan matures. The idea behind this loan is to charge more as your salary increases, but the loan payments will go up even if your salary is constant over time.
  • Income based repayment: This option actually relies on your income to set monthly payments. It is the most flexible choice, but it is also least predictable in terms of total expense.

Deferment Options

Once you have selected your overall structure, you will have to make a decision as to whether you will start making payments while you are attending school. Waiting until you graduate to start payment is called deferment, and you may even be able to defer payments until you find a job. When you defer, interest still accrues on the loan. Deferment, therefore, makes repayment much more expensive. Making the payments while you are a student, however, may not be an option if you do not intend on working while in school. 

Grace Periods

Some loans come with grace periods after graduation in addition to deferment options. These periods typically give you 90 days to 6 months in order to settle your finances before you begin repaying loans. This is typically enough time to find a job and determine how to budget your expenses. No grace period loans are cheaper in the long run, but they can place a lot of stress on a graduate who has not yet located stable employment after school. This is particularly burdensome in a bad economy where the job market is slow for recent graduates.

Interest Options

While you attend school, you may be able to make interest only payments. This can allow you to keep the interest on your loan from compounding. The monthly payments would be much lower than if you were additionally repaying the principal. If you can afford this option, even if you cannot actually make loan payments, you should take it. This will reduce the overall cost of the loan. You will also find lower monthly payments when you do graduate, providing for more flexibility in your lifestyle in the short-run. You will pay the loan off sooner, making you more financially stable in the long run.


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