All About Private Loan Repayment Options

Learn all about private loan repayment options

Flickr user Wade Morgen

The type of student loan repayment plan you choose is almost as important as the loan itself. A repayment plan dictates the terms of paying back your loan. That also includes when you start making payments and how much those payments are. Your repayment plan can influence your ability to make repayments as well. Assuming that you’ve graduated college and need to start repaying your private student loans, you should think about your repayment plans. Most private lenders offer student borrowers four private loan repayment options:

Immediate Repayment

Choosing this option means you are agreeing to pay back the full principal and interest while you are still in college, starting as soon as you receive the funds. Immediate repayment minimizes the interest you pay on your loan. However, the downside to this plan is that you have to focus on payments while studying. In other words, you need to find the time to focus on classes while making enough money to pay off your loan. This can be difficult for many students. They either don’t have the time, or aren’t making enough money to cover their loan payments. Most often, students are working part-time jobs or doing work-study, as well as covering their own bills and necessities.

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Interest-Only Repayment

With this plan, you are choosing to pay back only the interest that accrues every month. The benefit of this plan is that it prevents your loan balance from growing. However, the downside is that it does not really reduce your loan amount. Your principal amount stays the same. In other words, you pay off all the interest that builds up. That means that you don’t have to worry about said interest growing. However, you don’t make any headway through your principal amount, and still have to think about how you’ll repay that in the future.

Partial Interest Repayment

If you can commit to paying back only part of the accrued interest every month, this is the plan for you. With this plan you can agree to pay a fixed amount every month, say $50 or $75, to cover a percentage of the accrued interest. While a partial interest repayment may not take care of the full interest that you owe every month, it does help to slow down the pace at which your loan balance grows. This is so you do not have an overwhelming amount of debt to handle after you graduate.

Full Deferment

With a full deferment plan, you commit to start paying back the loan only after you graduate. This means you do not pay anything while you are still in school. The advantage of full deferment is that it allows you to focus on your academics without worrying about your loans. However, your interest and loan balance will keep increasing throughout and you will end up paying much more by way of interest over the life of the loan.

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