Before You Pay UP Check Repayment Options

Submitted by poorteacher on Wed, 10/24/2007 - 13:05

You want a lender that has a variety of repayment options. The most
common repayment plan is a fixed amount per month for 10 years. But
some lenders are also offering graduated plans that assume your child's
income will rise the longer he or she is out of school. This plan
allows your child to increase his or her monthly payment in two to
three stages. And, with some lenders, students can consolidate their
loans to increase the repayment time from 10 to, say, 20 years at a
slightly higher interest rate.  

All lenders will let your child defer payments if he or she decides to
go back to school — they must be enrolled at least half time — or take
up volunteer work. Unemployment, internships and fellowships may also
entitle your child to defer. And all lenders are required to allow up
to 24 months of hardship "forbearance." 
Who Should Borrow Student Loans, You or Your Child?

It used to be the student had to max out on Stafford loans
before their parents could take on a PLUS. No more. Starting a few
years ago, parents became eligible to borrow the entire cost of college
whether or not their children took advantage of the Stafford program.
But even if you plan on repaying the loan yourself, have your child
borrow first. Students get the lower rate on Stafford loans and can
defer the interest payments.

Moreover, your child is more likely to
benefit from the deductability of student loan interest. Singles who
earn less than $65,000 and joint filers earning less than $130,000
($135,000 for 2005) can deduct at least part of their student-loan
interest charges up to a maximum of $2,500. Finally, some employers
agree to help new hires pay their educational debts, so there's a
chance your kid may get bailed out at work.  

If you still need to borrow from the PLUS program, but your credit
rating disqualifies you, you do have a fall back. Your child will be
allowed to get unsubsidized Stafford loans subject to the same limits
as subsidized ones. Graduate students are allowed to borrow up to
$10,000 per year.