Monday, March 3, 2008

Exit Loan Counseling

Although a lot of it is repetitive and not necessarily ground breaking, exit loan counseling can indeed provide some insight into your financial future after college. I found the question "Do I have to pay my student loans back?" to be a little silly, but there are at least some terms and explanations that I found useful. Hopefully I can help save you from reading every single detail. Here is what I found useful:

Repayment Options:

1)Standard repayment
2)Extended, long-term, Graduated repayment
3)Income-sensitive repayment (for Federal Stafford loans)
4)Income-contingent repayment (for Federal Direct Stafford Loans and Federal Plus loans)

Really, the names do a good job of summarizing what each type means.

Standard repayment comes down to equal monthly payments for up to 10 years (excluding periods of deferment and forbearance - more on these later). It's relative simple or "standard". This tends to be best if you can afford the payments. Typically it is ideal for people who have lower balances or people that can afford to pay higher balances. It is also ideal for minimizing the interest you will pay (it has the shortest term).

Extended/Long-term extends your repayment period so your monthly payments are less (and you have better cashflow). The problem is you will pay more in interest the more you drag the loan out. You also need to make sure your loans can be extended (guaranteed Stafford loans have to be consolidated first). This would be better if you really need the cash flow and cannot afford higher payments.

Graduated repayment is tricky because you do not have to be graduated!It just means your payments start low and increase over time. I personally do not recommend this route unless you can 100% guarantee you will be making significantly more money in the future (and I don't mean you hope you will). The problem is you can end up having large payments sneak up on you over time. This happens to a lot of mortgage owners that choose balloon payments!

Income-Sensitive Repayment is based off of your annual income. The benefit is that you will probably never have to worry about not being able to afford your loan payment. The downside is that you could potentially accrue the most interest and lose the most over time. Of course, in my opinion, why not choose this option and pay more towards your loan if you have the cash? At least it gives you the flexibility to say you cannot afford it in a month that you are strapped for funds.

Income-Contingent Repayment is for federal direct Stafford loans and is adjusted each year based on your income.

This is a great resource for answering any questions you may have, of course you can always ask me as well:


I'll get more into these later but to sum things up:

Deferment: Pospones principal and interest payments for specific periods of time when you meet the certain conditions. The conditions are typically set by the government and are usually based on financial need. This is the one you want though because the government is making payments for you. The payments are on the interest, however, not the principal (so they are saving you a minimal amount and some time).

Cancellation: Total or partial forgiveness of a loan for specific reasons. This could be like your school evaporates or closes its doors. This rarely happens.

Forbearance: A temporary suspension of payments, an extension of time for making payments, or a temporary reduction in the monthly payment amount. Most people end up getting forbearance if they get anything. Your loan companies will want to give you forbearance if it means getting payments on time. Typically they will work with you (as long as you are persistent) because it really is in both your and their best interests. You do not want to default or look like you made any late payments because it will damage your credit score.

Well hopefully that saves everyone some time, let me know if there are any questions (remember I am still learning a lot of this stuff as well!).

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