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Updated on Tuesday, June 4, 2019
Borrowing a private student loan can help put the cost of college or graduate school within reach. But when do you have to pay back private student loans, and can you defer private loans while in school?
Fortunately, most private lenders do give you a break while you’re in school and don’t require repayment until six months after you graduate, just as with federal student loans. But since every lender is different, it’s crucial to check your agreement before assuming you can put off repayment.
What’s more, you might prefer to start paying your loan off early to minimize interest. Here’s what you need to know about private student loan deferment and repayment options.
When do you have to pay back private student loans?
Unlike federal student loans, which abide by a blanket set of terms and conditions, private student loan contracts can vary from lender to lender.
Still, as mentioned, most private lenders don’t require you to make payments while you’re still in school. Instead, they typically honor a grace period, during which your payments are postponed while you’re enrolled in school and for six months after you graduate, withdraw or drop below half-time enrollment.
Once your grace period ends, you’ll start repayment according to the terms and conditions you agreed to when you borrowed your loan. And be prepared: You could be facing a bigger balance that you initially took out, since interest will accrue from the date of disbursement and might get added onto your principal (known as “capitalizing”) once repayment begins.
Note that some lenders do require immediate repayment of the interest on your loan. Make sure you’ve read through the terms of your contract so you don’t accidentally fall behind on your student loan bills.
What are my repayment options on private student loans?
Although the majority of private lenders offer in-school deferment on your student loan payments, many also let you choose alternative repayment approaches. If you can swing in-school payments, you could reduce the interest costs of the loan.
Here are some repayment options private lenders often offer to borrowers:
- Deferred repayment: As mentioned, you can postpone payments while you’re in school and for an additional six-month grace period.
- Interest-only repayment: Pay off any interest that accrues from month to month. With this option, you won’t be facing a bigger balance after graduation.
- In-school fixed payments: Make a small fixed payment of $25 or so per month while you’re in school.
- Immediate repayment: Although rare, some lenders will require you to start making full payments just a month or two after your loan is disbursed.
Make sure you understand all repayment requirements before signing your student loan contract. And if you can afford it, consider making small or interest-only payments while you’re still in school.
These in-school payments could cut down on interest and prevent your principal from ballooning, making your debt easier to manage after you graduate. In fact, you can prepay your loan at any time without penalty to save on interest and get out of debt ahead of schedule.
Is private student loan deferment or forbearance available?
As a college student, you might be eager to take advantage of your student loan grace period, giving yourself a little breathing room until you start making money. But if, later on, you’re struggling to find employment, lose your job or return to school, you might wish to pause payments again.
While federal student loans are eligible for deferment and forbearance, private loans aren’t guaranteed to have this option. Some private lenders let you pause payments if you run into financial hardship or go to graduate school, but not all of them do.
But even if your private lender doesn’t mention a deferment or forbearance option, it’s worth asking them for help if you’re struggling to repay your bills. Your lender might offer some flexibility, especially if the alternative is you going into default.
Remember that while deferment and forbearance can help you through a tough time, interest will continue to accrue, making your loan balance grow even bigger.
You can restructure your debt through refinancing
It’s crucial to read over the details of your private student loan contract before signing, since you can’t necessarily make changes to your repayment plan retroactively. But there is one way to change your terms — through student loan refinancing.
When you refinance, you basically trade in your old loan(s) for a new one. At this point, you can choose new repayment terms, often ranging between five and 20 years.
If you can swing heavier monthly payments, a shorter loan term can help you get out of debt more quickly. If, on the other hand, you’re looking for some relief, a longer term can save you more money each month (though it will cost you more in interest over the long run).
Refinancing can be a useful strategy for restructuring your debt, but you have to qualify first. Only borrowers with strong credit and income — or a creditworthy cosigner — will be able to qualify.
Consider paying back your student loans ASAP to save money
Even though you don’t have to make in-school payments on most private student loans, doing so could help your finances down the road. Some private student loans come with high interest rates, and some have variable rates that rise over time.
By making small or interest-only payments as a student — perhaps with income from a part-time job — you can cap interest before it grows out of control. Then you won’t have such a daunting balance when you leave school and are looking for work.
Once full repayment begins, you might also make extra payments to retire your debt faster. You can always prepay your student loans without penalty, but you might want to contact your servicer to ensure your extra payments are being applied to your principal and not being used to “prepay” interest.
Whether you choose to make extra payments or stick with the minimum, make sure to use a student loan calculator to learn about your loan. By playing around with the numbers, you can come up with a debt repayment plan that works for you.