Repaying College Loans: What to Expect

It's hard enough deciding where to go to college, what to major in and what campus activities you want to be a part of. These are all part of the college planning process and require plenty of thought and consideration. However, one aspect of your college education that you simply can't overlook is financial aid. Almost every college student amasses some debt during their college years. Most commonly, this debt is composed of student loans which are taken out during a student's education. Unlike grants or scholarships, you will have to pay these loans back after school, which can be a significant burden when you're fresh out of college. Learn more about what to expect when taking out college loans in order to make smarter financial decisions for your future.

1. Interest Rates
When you take out a loan, it usually accrues interest based on the set rates from the organization which is providing the loan. Federal loans typically have lower interest rates, than private loans. It's important to understand that every month you are in school, your debt is growing due to the interest which is adding up on your loans. Some students do their best to try to pay off the interest as they go through school in order to keep repayment costs down.

2. Federal Loans: Subsidized vs. Unsubsidized
You may qualify for loans from the federal government based on you and your family's gross income. One important thing to understand about federal loans is that subsidized loans do not accrue interest during the course of a student's education. Unsubsidized loans, on the other hand, do charge interest from the time the money is given to the time when the loan has been completely repaid. Students should plan accordingly when accepting financial aid from the government.

3. Repayment Plans
One of the major decisions you'll have to make after college is what payment plan you'll go on in order to repay your loans. Many students go with the standard repayment, which involves an equal amount which is charged each month until the loan has been completely repaid. Others use the graduated repayment, which starts with a lower monthly charge and grows slowly over the course of the repayment plan. Another common option is income-based repayment, where students pay according to their monthly income. Each of these plans has its pros and cons, so weigh your options carefully. Also, pay attention to the length of your repayment plan; depending on how much you owe, your monthly charges may be based on a 5-year, 10-year or 30-year plan. Of course, you can always pay it off sooner if you are able to make larger monthly payments.

4. Forbearance and Deferment
If you are not able to make your monthly payments within six months of your graduation from college, you may have to choose to put your loans in forbearance or deferment. Both options delay the repayment of the loan, but the forbearance option still requires the graduate to make payments on the interest that accrues. Deferment, on the other hand, freezes both the loan and the interest until the deferment period is over. Deferment is usually reserved for more serious financial situations or if a student reenrolls in school.