Choose Your Private Student Loan Repayment Structure

As you work through your options to pay for college, you’re probably considering taking out a private student loan. Private student loans are a great way to cover any extra expenses you haven’t been able to cover with scholarships or federal loans. Part of choosing the right private student loan is selecting one with favorable interest rates and repayment terms so you can afford your payments after graduation.

What is the student loan interest rate?

Some private loans offer fixed and variable student loan interest rate options. The fixed rate will stay the same for the term of the loan, whereas the variable rate fluctuates with the LIBOR (London Interbank Offered Rate). If you can lock in a low fixed rate, this may be the best option. Otherwise, you can take a small gamble on a low variable rate and hope the market doesn’t shift too much. It all depends how much risk you are willing to assume. It’s also important to note that your student loan interest rate is based on several other factors, including: your credit score, whether or not you have a co-signer, any automatic payment benefits that reduce student loan interest rates, and the repayment term you choose.

Use a student loan repayment calculator to choose a payment structure

A student loan calculator is designed to help you plan your payments so you can decide which interest rate, term, and repayment structure best suits your needs. Plug in your desired loan amount, then play around with different student loan interest rates and loan structures to find the best option for you. The results you get can vary depending on the repayment plans offered by the bank. Here are three common repayment plans for private student loans:

  • Immediate: With an immediate repayment plan, you can start making fully amortized payments on your loan while in school. That means your payments will include principal and interest. This can save you money in the long run as you are reducing the balance on which interest is compounding.
  • Interest-only: If you’re looking to put a dent in your debt with a lower monthly payment, choose an interest-only structure while in school. After you graduate, your payments will become fully amortized, but until then you can lower your total loan debt at a manageable pace.
  • Deferred: If you’re not ready to start repaying, you can defer your loan payments until six months after you graduate, leave school or drop below part-time status. However it’s still a good idea to try and save for future payments during this time period.

Make consistent student loan payments to build your credit

Whether you’re making interest-only or fully amortized payments, consistently making monthly payments not only helps pay down your private student loan, but it also helps build up your credit. Plus, some loans offer a cosigner release option. If your parents cosigned a loan with you — which is likely as most students don’t have the credit to qualify alone — they can be released from their obligation after you make a set number of consecutive, on-time payments. A cosigner release reflects positively on you as well, since it shows you have the credit and consistency to be the sole borrower on the loan.

Talk to a trusted lender to explore private student loan options

Each borrower has unique needs, and it’s important to find a loan and repayment structure that helps to meet those needs. Speak to your lender about student loan interest rates and structures so you can find a private student loan that won’t overwhelm you. Not sure how to find the right lender? Your school can probably provide you with a list of preferred lenders they’ve used in the past. It’s a great place to get started.

Sponsored content was created and provided by RBS Citizens Financial Group.

About Jen Perkins

Likes: saving money, being debt free (aside from our house), zombies, travel, getting money, blogging and dogs. Dislikes: debt, being broke, bunnies, wasting money, not having enough money to travel the world and paying interest. Facebook  ♥  Twitter  ♥  Google+  ♥  RSS

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