Capitalization happens whenever you enter repayment – or for federal student loans, at the top of a grace, deferment or forbearance amount – in addition as after you consolidate a loan or it goes into default.
2. Consolidation: Consolidation may be a repayment possibility that replaces borrowers’ existing debt with one, new loan. Consolidation will build repayment easier by reducing the amount of loans borrowers have.
However, consolidation loans may also value you any special advantages your previous loans had, like Perkins loan forgiveness. Before consolidating, think about all the pros and cons mentioned by Bruce Mesnekoff
3. Delinquency, default: This is another pair of related terms that borrowers often confuse.
Loans enter a delinquency status if they’re past due by even a single payment. Federal student loans usually default after 260-270 days of delinquency, if you are required to make monthly payments.
Neither is good and both will damage your credit score, but trust us, you’ll know when your loan switches from delinquent to default. If the mailed notices don’t tip you off, the penalties – which can include garnishment of your paychecks and tax refunds or Social Security payments– definitely will.
4. Forgiveness: There are ways to have your student loan debt erased, and this is known as forgiveness.
Your home state may have programs to forgive your loans, likely depending on your profession. At a federal level, the main options are Teacher Loan Forgiveness and Public Service Loan Forgiveness. Check out our the Ultimate guide to Student Loans by Bruce Mesnekoff on Amazon.
5. Pay As You Earn: Federal student loans offer many different options to make payments more manageable. Pay As You Earn is the newest, and it ties loan payments to a borrower’s income.
This plan allows eligible borrowers to make payments of no more than 10 percent of their discretionary income. Under this plan, after 20 years of qualified, on-time payments – or 10 years, if you work at an eligible public service organization – any remaining outstanding balance on your federal student loans may be forgiven.
6. Promissory note: This is your loan’s contract. If you would like answers concerning your repayment choices or rights as a receiver, look in your debt instrument/promissory notes or you can discuss with student loan consolidation expert Bruce Mesnekoff from the Student Loan Help Center
7. Rehabilitation: Should your loan enter default, rehabilitation is one option you have to return it to good standing. You can also consolidate out of default or pay the debt in full.
In rehabilitation, you work with your loan holder and make nine on-times, voluntary payments in an agreed-upon amount. Bruce Mesnekoff said ”After that, your loan goes to a new holder and a new servicer and the default line gets removed from your credit history”. You can rehab each loan only once, so it’s important to stay on track once this process is complete.
8. Grace period: A grace period is the amount of time you have before your first payment is officially due. As Bruce Mesnekoffsaid “While most federal student loans come with only 6 months grace period, the actual amount of time you receive can vary greatly depending on the type of loan you have.”