Knowing the logistical details involved in repaying your loans will be the key to successfully transitioning from borrowing to repayment.
This section reviews some important details regarding your loans and tips for success:
- Remember your grace periods
- Monthly statements: online, voucher or monthly paper bill
- What will my statement look like?
- Length of repayment
- Electronic debiting options
- Prepayment of loans – the dos and don’ts
- Tips for successful repayment
Remember your grace periods
As outlined in the Loan Programs each loan comes with a grace period. A grace period is a set period of time after you graduate, or temporarily or permanently leave school when no loan repayment is required from you. For most loans the grace period is six months while other loans programs have a nine month grace period. The grace period starts the day after 5/14/15 for students graduating this May. If you have a subsidized loan, interest will not accrue during the grace period, however, interest will accrue on all of your unsubsidized loans even during the grace period. Keep in mind that if you have already used all of your grace period, you will not receive another one. While there are a few students each year who choose to enter repayment early and waive their grace period, many students cannot afford to do this and expectant LIPP participants must take advantage of their full grace period.
Monthly statements: online, voucher or monthly paper bill
Most lenders will send you one monthly billing statement for all the loans you have borrowed through them. Usually a simple phone call can turn these little voucher book or paper bills into an electronic billing statement. Additionally, the date by which the payment is due each month can be changed by calling the lender. If the lender says that your loan is due on the 20th of each month and you don’t get paid until the 25th, simply call the lender and tell them about your situation. They will be happy to adjust the due date within reason.
What might my loan statement look like?
Your statements will vary depending on your servicer and they can be confusing so it is important to carefully review them each month. You will likely do the majority of your transactions online, however, you may receive some initial communications from your lender via the mail. We have gathered a few common statements to help familiarize you with what you may see and a couple of things to watch out for:
- Common Lender Certifications from Direct, the Harvard Student Loan Office, Discover, Citibank, Sallie Mae, and ACS, FedLoan
- Citibank – optional payment
- Direct Loan – reading a statement with multiple groups
- Direct Loan – next payment versus pay this amount
Length of Repayment
Remember that your federal loans come with many different repayment options; all with various repayment lengths. You can choose to go in and out of these options as you wish. This is not true for private loans. Private loans have a fixed repayment term. You may contact the lender to ask about the possibility of formally shortening the repayment term to 10 years from the 15 or 20 year terms that are typically standard if you wish. However, change in the length of repayment for a private loan is at the discretion of the lender. Students interested in LIPP should be aware that LIPP only provides assistance on the ACTUAL required payment and, although not required, recommends that participants place all of their loans on 10 year repayment terms if possible. Estimated payments will not be considered for LIPP purposes.
Electronic debiting options
Electronic Debiting is a payment service that allows your lender or servicer to electronically deduct your monthly loan amount from your checking or savings account. Many lenders offer interest rate reduction of 0.25% to students who have their payments withdrawn electrically. This is an easy way to make payments and to avoid defaulting on your loans. You’ll also save time and money! Some lenders also require you to receive electronic bills in order to receive this benefit. You’ll receive information from your lender regarding electronic debiting just prior to entering repayment. If not, just look on their web site for details on how and when to sign up.
Keep in mind that some lenders do not allow you to sign up for electronic debiting until you enter repayment. So don’t forget to make that first payment on time in order to keep all of your “on-time” benefits. Some students lose out on their repayment benefits because they miss their first payment. Don’t let that be you! Know when your first payment is due on each loan and be sure to have the payment in by or before the due date.
It’s a good idea to create a separate checking or savings account just for the repayment of your loans. You may not want your lenders to have access to your main checking account for security reasons. Once you set up a separate account, calculate how much money you will need to transfer into the account each month (watch for quarterly interest rate changes with your variable rate loans). Be sure to monitor your account once a month when paying bills.
Prepaying Your Student Loans
There are no prepayment penalties on any of the student loans you have borrowed while in law school. You can prepay a loan at any point in time and must repay only the principal and interest that has already accrued on the loan. It is always advantageous to make any prepayments on your highest interest-rate loan first, to the extent of fully repaying a higher interest-rate loan, before making a prepayment on any lower interest rate loan.
If you want to make a prepayment on a loan, you should first contact your lender to get specific instructions. When you call, ask about the best way to make a prepayment, and find out the correct address or web site to which you should send the payment. Keep in mind that you first have to pay the interest that has accrued to date; any remaining amount of your payment will then be applied to your principal balance due. For example, if 15 days of interest has accrued on the loan for a total amount of $100, your prepayment will first go to pay off the accrued interest of $100, and the remaining amount of your prepayment will reduce your principal balance. After making a prepayment, you should always confirm that your prepayment has been applied to your account appropriately as a lump sum to reduce the outstanding interest and principal, rather than being applied to your loan account as a series of future monthly payments.
A loan is capitalized when all interest that has accrued to date is added to the principal loan amount. Capitalization rules can vary by loan program, but generally student loan interest is uncapitalized until just before repayment begins. Before capitalization, interest accrues on the original principal loan amount. After capitalization, future interest will accrue on the new loan amount (the original principal amount plus capitalized interest). If you pay the uncapitalized interest just before the date capitalization occurs, your principal amount will not have the uncapitalized interest added to it, and you will thereby avoid paying additional interest on the accrued interest. Note that if you make a prepayment on a loan with uncapitalized interest, the uncapitalized interest must be fully paid before your prepayment will reduce the principal balance. If you wish to prepay uncapitalized interest before it capitalizes, be certain to check with your lender to find out when your interest will capitalize, and remember that it is always advantageous to prepay the loan with the highest interest rate first.
It is important to know that if your prepayment does not pay the loan off in full, your next regularly scheduled monthly payment will still be due. In other words, while the prepayment does not reduce your monthly payment amount, it will reduce the number of times will be required to make that monthly payment, and thereby reduces the amount of interest you will pay over the life of the loan.
Tips for successful repayment
• Make sure you have all your loan records organized.
• Know the amount of your student loan payments.
• Include student loan payments in your budget.
• Know when your loan payments begin.
• Contact your loan holder immediately if you are having trouble making your monthly payments.