STRATEGIES FOR REDUCING LOAN PAYMENTS and THE COST OF YOUR LOANS

STRATEGIES FOR REDUCING LOAN PAYMENTS

You may reduce or temporarily eliminate loan payments using deferment, forbearance, extended repayment arrangements or consolidation/refinancing. These programs are described below, and are intended to prevent you from defaulting on your loans. You are strongly advised to consider the cost of delaying or extending repayment. If you are not making full monthly payments or if you lengthen the repayment period, you will incur greater interest costs.

Deferment allows you to stop making payment while you are participating in a qualified activity or while you meet certain conditions. Deferments are granted for one year intervals; each deferment category is usually limited by a lifetime maximum. Interest does not accrue on subsidized loans during deferment, but it does accrue on unsubsidized loans.

Forbearance is an arrangement between the borrower and the lender to reduce or suspend payments due to economic hardship. Forbearance is generally granted in one year intervals and often requires documentation illustrating your financial difficulties. Certain types of forbearance must be granted as long as you meet certain criteria, such as participation in a residency program. Most forbearance requests are reviewed by the lender on a case-by-case basis and are granted at its discretion. Interest accrues on all loans during forbearance.

Graduated repayment and income contingent repayment programs allow you to make loan payments that more closely mirror your income level. Payments start at a modest level and gradually increase. It may be necessary to lengthen the term of a loan if one of these programs is selected. If the term is not extended, your payments in the latter part of repayment will be inflated. It is also generally possible to choose an extended term without graduating payments.

Consolidation may have the effect of lowering payments, either by improving the interest rate you are paying or through the implementation of a graduated, income contingent or extended repayment plan. If you determine that it is not financially beneficial to consolidate but find it difficult to make multiple loan payments each month, you may request that your loans be purchased by a single lender and combined into one monthly payment. Through combination, the loans still exist as separate entities, but you need only make one payment that the lender distributes among your accounts.

STRATEGIES FOR REDUCING THE TOTAL COST OF YOUR LOANS

Prepayment to the principal balance of a loan is a sure way to reduce interest charges in the future and reduce the overall cost of borrowing funds. If you make an extra principal payment, enclose a prepayment letter with your check specifically requesting that the funds be credited to the principal balance. When you receive your next loan statement, verify that the payment was properly credited. Lenders have the option to require that you repay outstanding interest balances before extra payments will be credited to the principal balance. Some private loan lenders may allow principal payments even with an outstanding interest balance.

Refinancing or consolidation programs can reduce the total cost of repaying your loans if the interest rate and/or interest capitalization policy is better than on your separate loans. However, beware that choosing an extended repayment option could wipe out any savings you would otherwise enjoy. For advice on the benefits of consolidation and when best to apply, please review our ‘Strategies for Reducing Loan Payments’ section or contact Student Financial Services at 1-877-776-6243 or (617) 638-5130.

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