Usually, when you take out private student loans, you have few repayment plans you can choose from.
The repayment plan you select has a significant impact on your monthly payments. Not only that but how much interest you’ll be charged over the life of your student loan.
This guide will help you choose the best repayment plans for your private student loans.
Let’s begin.
Private Student Loan Repayment Options
There are four typical repayment plans you can choose for your private student loans. However, remember that not all loan lenders offer all the below four options.
- Immediate repayment
- Partial interest repayment
- Interest-only repayment
- Full deferment
Keep in mind that the interest rates start accruing the moment your student loan is disbursed. And it occurs for all four repayment options. So even though you can still get a private student loan relief, you need to be strategic about it.
If you don’t at least pay the interest you owe every month, your student loan balance will increase while still enrolled in school. So now, let’s go through each of the four repayment options.
Immediate Repayment
The immediate repayment plan means that you make total payments every month while still in school.
Pros
If you can afford it, choosing this plan can help you reduce the interest you pay, which can help you save a lot of money. And since you’re already making monthly payments toward your principal and interest, you’ll make a good start in paying off your student loans when you graduate.
Cons
The downside is that the immediate repayment option is not ideal or realistic for most students to make such payments, especially when still in school.
However, you could take a side hustle to pay off your student loans. You can find a way out if your priority is to get rid of your student loans faster.
Interest-Only Repayment Plan
When you opt for an interest-only repayment plan, you’ll focus your repayment on only the interest while still in college.
Pros
If you go with this repayment plan, you can manage your monthly payment comfortably. And your student loan balance won’t increase while still enrolled in school.
Cons
You won’t make any progress when you pay down your loan balance while you’re still a student. The good thing is that what you owe won’t be more than what you borrowed when the time comes for you to begin your total repayments.
Partial Interest Repayment Plan
With this repayment plan, you make a fixed monthly payment while you’re still in college. But it only covers part of the interest you owe.
Pros
This repayment plan allows you to pay a fixed amount like $30 or $50 per month. But this amount doesn’t cover all the interest you owe. However, it keeps your loan balance from growing faster.
This repayment plan is a stress-free way of tracking your loan balance and decreasing the overall amount repaid.
Cons
The downside is that you’ll still owe more than you borrowed when you graduate. But the student loan balance won’t increase quickly.
Full Deferment
If you go with full deferment, you’ll pay nothing while still in school. However, your loan balance will grow.
Pros
This plan helps you to worry less about paying back your student loans until you graduate. In addition, some loan lenders offer a six-month grace period after you graduate before payments become due.
Cons
Interest charges will pile up as you enroll in school, and your loan balance will grow as well.
Go With A Shorter Repayment Term
Choosing a shorter repayment term can get you a better interest rate. You can also pay less in total interest rate because you pay down principal quicker. Here’s what we mean: the shorter the repayment, the higher your payments each month.
The standard repayment term for both federal and private student loans is ten years. However, some private loan lenders give longer and shorter repayment terms such as five years, seven years, or even 20 years.
Please take note. Choose a plan based on how much you need to borrow.
Final Thoughts
It’s highly critical that you select a plan based on the overall amount you expect to borrow. And that’s because you’ll stay with the method you choose until you pay off your student loans or refinance them.
We recommend that you talk to an expert to help you make the best choice.
