Know Your Private Student Loan Repayment Responsibilities


It’s easy just to sign up for your student loans and forget about them, but you are required to pay them back once you leave school whether you completed your degree or not. And, some students are expected to make small payments on their private loans while they are enrolled. Your responsibility starts with a contract. When you take out a loan you have to sign a contract with the lender confirming an understanding of the loan, and how it is to be repaid. This contract is called a promissory note and is used for car loans, home mortgages, and yes student loans. A promissory note is simply your promise to repay the loan. Because the promissory note is a legal document, you should read it very carefully and make sure you understand all the terms and conditions before you sign. You’ll also get a disclosure statement which outlines specific details such as the amount borrowed and the interest rate for your particular loan. These documents outline the terms and conditions of your private loan as well as the rights and responsibilities as the borrower. If there are errors on these documents, be sure to contact your lender. Remember, you have 30 days to accept the terms of the loan and three days to back out without penalty. And if you have a cosigner on your private loan, that person has jointly signed the promissory note for the loan. Even though you, as the primary borrower, will receive monthly bills and make payments, the cosigner is equally responsible for the loan’s repayment. That means the cosigner’s credit would likely be negatively impacted if you miss a payment or default on the obligation. Okay, so you understand your responsibilities and the fine print. Now let’s answer the two really important questions: how long will repayment last, and what’s it really gonna cost? It all depends, but most private loans come with a repayment term of 10 or even 15 years. But, that doesn’t mean you have to take the full term to pay it off. Once you leave school, private loans don’t have all the postponement options that federal loans offer. Deferment may not be an option, but if you run into trouble with payments and need to postpone or stop payments for a while, you might be able to get a forbearance. A forbearance is a short postponement in payment where the interest continues to accrue. The length and requirements to receive the forbearance will vary. However long it takes, make sure you have a smart strategy to pay it all back. Your best bet? Pay off private loans first before federal loans. Here’s why: most federal loans generally carry a low to moderate fixed interest rate, and flexible repayment terms. Private loans generally have higher interest rates that can be variable, and less forgiving repayment policies. And considering that the cap on rate increases for private loans is pretty high, you could end up paying more than you expected on your private loan the longer it’s around. In most cases, you’ll save big by wiping out your private loans first. One strategy to think about down the line, when you’re no longer enrolled, is to reduce the monthly payment on your lower-rate federal loans by using one of their flexible repayment options, and then use the freed-up cash to pay off your private loans ASAP. Hopefully you’ll know a little more about your private loan now, and how you can pay it off as quickly and cheaply as possible.

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