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Repayment Tips for Student Loan Borrowers

An avalanche of student loansDecember is a peak period when Latino students begin making payments on students loans following graduation ( they typically have a six-month grace period, and then loans are due for payment.) There is a lack of understanding among Hispanic student loan borrowers on what their options are for repayment, especially with federal loans.

Data released this week by the Federal Reserve Bank of New York shows that 11% of student-loans were 90 days or more past due in the third quarter, up from 8.9% at the end of June, a rate that now exceeds that for credit cards.

With holiday spending, 2013 resolutions and Hispanic thinking about how to better manage their finances, it’s a good time for student loan borrowers who are no longer in school to consider consolidation of student loans as one option to help manage repayment. 

The following are five steps that can help make student loan repayment simpler:

1. Use your six month grace period following graduation to get organized for repayment.

  • Get your documents in order—remember to keep copies of any loan documents you sign. If you will make payments to more than one entity, be sure all your loans are accounted for.
  • Know when payments are due and the amounts.
  • Set up automatic payments to ensure timely payment and protect your credit.
  • If you can, make payments while you’re in school. This will help save you money over time, by reducing the interest that accrues and is capitalized.

2. Consider loan consolidation, but make sure you do your research before signing up. Student loan consolidation may be a good option to consider for students interested in combining multiple private student loans into a new loan with a single monthly payment. Customers may benefit from a lower interest rate and potentially lower monthly payments. Repayment typically begins immediately, even for students still enrolled in school, and although monthly payments may be lower, you may pay more in interest over the life of the loan due to the extended repayment term. Be sure you understand the rate, repayment terms, what additional rate discounts may be available, what the cost is to consolidate and if there are penalties for paying off the loan early. Not all lenders offer the same terms, so be sure to do your research.

3. Understand your repayment options. Keep in mind, for federal loans and Wells Fargo private student loans, there is no penalty for making larger payments than the monthly required minimum or paying off the loan earlier than the end due date. With a standard repayment plan, you pay the least amount of interest over the life of the loan. For federal loan borrowers there are additional repayment considerations:

  • Extended repayment may be based on a fixed or graduated repayment schedule over a period of up to 25 years.
  • With graduated repayment you make lower payments at first, then gradually increase them.
  • An income-sensitive repayment is adjusted annually based on your expected income from all sources.
  • Choosing any of these plans means your payments are less each month, however you may pay more interest over the life of the loan.

Borrowers also may have the option to defer loan payments for an extended period of time, but need to be aware of the interest that accrues when borrowers choose to defer making payments. Below is an example of how much a borrower will pay in interest, by deferring payments for only 12 months. Think of how quickly the interest amount can grow in just a few years.

 

Student A

Student B

Begins making payments once the grace period has expired and does not go into deferment.

Enters deferment immediately after grace period ends. Deferment period lasts for 12 months.

Amount due at beginning of repayment

$30,000

$30,000

Length of deferment/forbearance (in months)

0

12

Interest rate on loan

7.50%

7.50%

Principal balance due at end of deferment

N/A

 $32,250.00

Repayment term in months (i.e. # of payments required)

120

120

Monthly payment

$356.11

$382.81

Total payments over life of loan

$42,732.64

$45,937.58

Total interest paid (from the point at which the grace period ends)

$12,732.64

$15,937.58

Amount saved by making payments immediately upon
entering repayment,rather than choosing to defer or forbear
their loan payments.

$3,204.95

 

How much could a student be saving?

In this example, two students borrowed federal student loans of $30,000 at a 7.5% interest rate. Student A reduced their cost $3,204.95 by making payments as soon as their loan entered repayment, compared to Student B who deferred loan payments.

4. Keep in contact with your lender or loan servicer.

Notify the lender immediately:

  • If you change your name, address, phone number or e-mail
  • If you have graduated from or are going back to school
  • If you can’t make your payments. A new plan may be arranged.

5. Learn more at Wells Fargo Education Financial Services online at www. wellsfargo.com/student/repay/ or call (800) 378-5526.

For additional resources on repayment go to Wells Fargo Loan Repayment Calculator and Interest Savings Calculator


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