Ibrahim Gardner
Stella and Xavier, like many students, have to deal with the burden of student loans. With federal loans, they have a standard repayment schedule of 10 years, but private loans can range from 10 to 15 years. They have a six-month grace period after graduation before they must start making payments. During this time, they can choose a repayment plan that suits their financial situation. They can also consider loan consolidation to bundle their loans and have one payment. To pay off their loans faster, they can make extra payments or increase their monthly payments. However, if they face financial hardship, they may be able to request a forbearance or deferment to temporarily stop or reduce their payments.
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Grace periods
A grace period is the waiting period between the time a student leaves school and the time they start making payments on their loans. Grace periods are typically six months for federal student loans, such as the Federal Stafford Loan, Federal Direct Loan, and Federal Perkins Loan. During this time, borrowers are not required to make any payments, but interest may accrue, depending on the loan type. For example, unsubsidized loans will accrue interest during the grace period, which will be capitalized and added to the loan principal when repayment begins.
Students with private loans may also be offered a grace period of six months before payments are required. However, it's important to note that some private lenders may have different requirements, so borrowers should carefully review the terms and conditions of their loans.
For those who return to school or maintain at least half-time status in a qualifying course of study, it is possible to interrupt the initial grace period and be allotted another grace period. In the case of the Federal Perkins Loan, borrowers are granted a nine-month grace period, and if they return to school after this period, they will be awarded another six-month grace period.
Additionally, members of the military on active duty may be eligible for an extended grace period of up to three years. On the other hand, Graduate PLUS and Parent PLUS loans do not qualify for a grace period, but deferment options may be available in certain circumstances.
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Loan refinancing
Refinancing can be a smart way for Stella and Xavier to simplify their student debt and reduce the amount they pay over time. When refinancing, they would replace their existing student loans with a new loan, ideally at a lower interest rate.
Firstly, Stella and Xavier should check their credit scores. Credit scores of at least the high 600s are typically required for refinancing, and many lenders seek borrowers with scores in the mid-700s. If their credit scores are too low, they could consider applying with a co-signer with good credit and income to improve their chances of approval and secure better terms.
Next, they should compare refinancing options from different lenders to find the best interest rate and the right fit for their financial goals. They should look at not just the rates but also the repayment terms and monthly payments. They should also consider any features they value, such as flexible repayment options or the ability to refinance parent PLUS loans in the child's name.
If they decide to refinance federal loans, they should ensure they have stable personal finances and emergency savings. Refinancing federal loans means forfeiting access to protections available only to federal student loan borrowers, such as income-driven repayment plans and loan forgiveness.
On the other hand, if Stella and Xavier have private student loans, refinancing could be a good choice if they have good credit and stable income and can secure a lower interest rate. They should also be aware that some private loans, such as Schell Honor Loans, are not reported to credit bureaus and have different requirements for exit counselling.
By refinancing, Stella and Xavier may be able to lower their interest rate, reduce their monthly payments, pay off their debt faster, and simplify their payments by combining multiple loans into one. However, they should also consider the potential drawbacks, such as losing perks like autopay discounts or loyalty rewards offered by their current loans.
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Interest rates
There are two main types of interest rates: fixed and variable. Fixed-interest rates remain the same throughout the life of the loan. This means that the borrower's monthly payments will be consistent and predictable. Federal student loans, such as those offered by Xavier University, typically have fixed interest rates. These rates are generally lower than private loan rates and do not change over time.
On the other hand, private student loans may offer a choice of fixed or variable interest rates. Variable interest rates are tied to market conditions and can fluctuate over time. While a variable-rate loan may initially have a lower interest rate than a fixed-rate loan, there is a risk that the rate could increase in the future, leading to higher monthly payments. Variable interest rates are often linked to a benchmark rate, such as the prime rate or the Secured Overnight Financing Rate (SOFR) index, plus a fixed margin. This means that the rate can move up or down based on changes in the underlying benchmark.
When taking out a student loan, it is important to understand the interest rate associated with the loan and how it will impact the overall cost. Online student loan calculators can be a useful tool for estimating monthly payments by taking into account factors such as the loan amount, interest rate, and repayment term. Additionally, borrowers should be aware of any applicable fees, penalties, or late charges that may be incurred throughout the life of the loan, as these can also affect the overall cost.
To make informed decisions about student loan repayment, borrowers should carefully review the terms and conditions of their loan agreements. It is also worth noting that loan consolidation programs may be available to bundle multiple loans together and refinance them as a single loan with potentially more favourable terms. However, it is crucial to consider the potential benefits and drawbacks of loan consolidation, such as the impact on the total cost and repayment period.
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Exit counselling
Students who borrow Schell Honor Loans will make their first payment two months after leaving Xavier University. These loans are serviced by Heartland ECSI and are not reported to credit bureaus. Borrowers of Schell Honor Loans are expected to notify the Loan Collection Office at Xavier when they cease enrollment or transfer to another school. Exit counselling for these loans can be completed via the ECSI website.
It is important for borrowers to remain attentive to communications from their lenders to ensure they do not miss important details regarding their loan repayment. Additionally, borrowers can prepay all or part of their student loans at any time without penalty. Paying a little extra each month can reduce the total loan cost. By communicating with their loan servicer, borrowers can ensure that any extra payment is applied to the loan principal rather than being counted as an early payment for the next instalment.
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Loan repayment plans
There are several repayment plans available for federal student loans. The amount to be repaid and the repayment duration vary depending on the repayment plan chosen. When a loan enters repayment, the servicer will automatically place the borrower on the Standard Repayment Plan. However, borrowers can contact their loan servicer to change their repayment plan at any time.
The One Big Beautiful Bill (OBBB) amends the Public Service Loan Forgiveness (PSLF) program to allow payments under the newly created Repayment Assistance Plan (RAP) to count toward loan forgiveness. The RAP will be in effect by July 1, 2026, and borrowers will be able to get immediate credit for PSLF under RAP.
The OBBB also eliminates the requirement for borrowers to have a partial financial hardship to qualify for an income-based repayment (IBR) plan. This change applies to borrowers with loans made between July 1, 2014, and July 1, 2026, who did not qualify for partial financial hardship. The IBR plan requires payments of 10% of discretionary income over 20 years, with any remaining balance cancelled. Prior to this change, borrowers could only access the Income Contingent Repayment plan, which requires payments of 20% of discretionary income and loan cancellation after 25 years.
Additionally, borrowers of federal student loans typically have a six-month grace period after graduating, leaving school, or dropping below half-time enrollment before loan repayment begins. Prepaying part or all of the loan is also allowed at any time without penalty, and paying extra each month can reduce the total loan cost.
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Frequently asked questions
Paying a little extra each month will reduce your total loan cost. Paying your loan off faster could help you save money.
Loan consolidation is a program that allows a borrower to bundle all of their student loans/payments together and refinance them to have one loan and one payment.
A forbearance is a temporary cessation of payment due to the inability to pay. It is based on an individual's current financial hardship and is granted at the discretion of the lender.
