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Last update: July 23, 2024
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Do you know the best repayment terms are? Explore private student loan repayment terms, tips to choose the right plan, how to save on interest, and get advice from TuitionHero.
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
College finance can be a tricky business, but we're here to help you navigate it. Private student loan repayment involves many terms and plans, from immediate repayment to full deferment, and having a good understanding of these terms can make the loan repayment process more manageable. In this post, you'll grasp the fundamental details involved in each repayment plan and learn practical tips on choosing the best plan for your financial situation.
The private student loan repayment terms refer to the conditions on which borrowers agree to pay back their loans. These terms typically include details on the schedule of payments, the amount to be paid, and any potential interests or fees.
Exploring these aspects is key to picking the best strategy that aligns with your financial situation and long-term goals. When I was researching my own student loans, I remember being overwhelmed by all the different options.
Wouldn’t it be simpler to just offer 1 repayment plan? But when I learned how different payment plans can make sense for different situations, I was grateful to my provider for offering flexibility. Let’s take a look at those plans now and see how they work in practice.
Let's dive right into the 4 types of repayment plans typically found in private student loans:
Regardless of the plan you choose, remember that interest begins accruing as soon as your student loan is disbursed.
If you choose the Immediate Repayment plan, you'll start paying back your loan while still attending classes. But, what does that mean for you?
Choosing an Interest-Only Repayment plan means you'll just be handling the interest on your loan in school.
With a Partial Interest Repayment plan, you'll make a fixed monthly payment that only covers part of the interest you owe while still in school.
The Full Deferment plan is basically the "no worries" approach. You pay nothing while in school. But remember, your loan balance will incrementally increase throughout your time in school.
It totally can! A shorter repayment term means you'll be making larger monthly payments, but you'll pay back the loan quicker, resulting in less interest adding up and a smaller total repayment. However, you have to balance this with the fact that larger monthly payments may strain your budget.
Here are some numbers to illustrate this, assuming a $20,000 loan at a 6% interest rate:
Repayment Term | Monthly Payment | Total Repaid |
---|---|---|
5 years | $386.66 | $23,199.36 |
10 years | $222.04 | $26,644.92 |
15 years | $168.77 | $30,378.85 |
Paying off a $20,000 loan in 5 years instead of 15 potentially shaves off more than $7,000 in total repayment costs. Higher student loan interest rates boost these savings.
It’s important that you base your repayment plan on the total loan amount, as chances are that this is the plan you'll stick to until you either pay off or refinance your loan.
Using a student loan repayment calculator, you can estimate your monthly payments, adjusting as needed. Remember, a longer loan term will make your monthly payments more affordable but it increases your total repayment costs.
Working your way through private student loan repayment plans might be tricky. However, having a set of best practices and pitfalls to avoid can make this process more manageable. Below is a handy guide to help you through your loan repayment journey.
Understand your loan terms
Make payments on time
Take advantage of any repayment benefits offered by your lender
Explore refinancing options if necessary
Start payments as early as possible
Ignore interest rates
Forget to update your details with your lender
Assume all loans are the same
Neglect potential tax benefits
Be afraid to ask for help
Working through private student loan repayment plans can be a lot. As you consider your options, keep in mind the pros and cons associated with each plan.
At TuitionHero, we simplify student loans and offer various payment options for school. Our tools include private student loans, refinancing, and FAFSA assistance. We assist students and parents in planning college costs and selecting the best repayment plans. Choosing TuitionHero means gaining a dedicated partner in managing your finances.
The choice of your repayment term depends on many factors like your current financial situation, future earning potential, and overall loan amount. A shorter term, like a 5-year plan, results in higher monthly payments, but helps you pay off the loan quicker and save on interest. Analyze your financial situation and future income predictions to make a smart decision. You can use our student loan refinancing tool at TuitionHero to ease the process.
No, there are key differences. Private student loans are provided by private institutions like banks and credit organizations, whereas the federal ones are funded by the government. The terms, conditions, and interest rates vary greatly between the two.
Yes, you can typically change your repayment plan if your lender allows it. However, changing the plan may make your loan more expensive in the long run. It’s best to choose a plan smartly from the start. Our FAFSA assistance at TuitionHero can help you figure this out.
Missing a payment could result in a late fee, increased interest rates, and a negative impact to your credit score. If you’re struggling with repayments, we recommend you contact your lender and discuss your options or consider student loan refinancing with TuitionHero.
Figuring out how to pay back student loans can be simple and clear. If you learn about the different ways to pay back loans, what's good and bad about them, and how they fit with your financial goals, you can pick the best one for you. Don't forget, at TuitionHero, we’re here to help you be free of debt.
Brian Flaherty
Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.
Rachel Lauren
Rachel Lauren is the co-founder and COO of Debbie, a tech startup that offers an app to help people pay off their credit card debt for good through rewards and behavioral psychology. She was previously a venture capital investor at BDMI, as well as an equity research analyst at Credit Suisse.
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