The repayment of the student loan
A student loan is a loan generally offered by financial organizations for students aged 18 to 28. It has an average duration of 9-10 years and an amount granted of up to € 75,000.
Duration is an important factor that must be chosen with care. Indeed, its lengthening may at first glance seem advantageous for the borrower who will benefit from small monthly payments. But in reality, the loan may be more expensive on arrival. This duration refers to the study of the repayment of the student loan.
The repayment terms of the student loan
The very principle of student credit is the financing of the needs of the young adult during the years of his schooling. While many students benefit from the help of their families, it may happen that some are not so fortunate or even that the contribution is not enough. A loan may be necessary and the offers for the benefit of students are specially tailored to their needs.
There are mainly four methods of repayment of the student loan: immediate repayment, repayments with deductible, early repayment.
The deductible corresponds to the period during which the repayment of the student loan is deferred. In principle, it covers the duration of studies and payment does not begin until the start of working life, when the borrower begins to receive real income. It lasts on average between 2 and 5 years and constitutes the primary interest of the student loan. Some banks sometimes leave a small margin between the foreseeable end of studies and entry into working life. After the franchise period, the actual student loan repayment takes place. This is the amortization phase. It is linked to the duration of the franchise chosen since the longer it has been, the shorter the repayment period will be.
The total franchise
During the period of studies, in the event of a total deductible, the young borrower will only pay the insurance premiums. It is true that taking out insurance remains an optional service. Nevertheless, it is strongly recommended to guarantee the repayment of the student loan in the event of the occurrence of particular events (illness, death, disability, etc.). The vast majority of banks offer insurance included in the service, at a cost ranging from 0.3 to 0.6% of the amount borrowed. Thus, the repayment of the student loan - that is to say the paid-up capital and the interest - will only be done once the deductible has been completed. Be careful, if this solution seems very attractive, it can be expensive since the interest is added each year to the amount received and in turn produces interest.
The partial deductible
Sometimes it makes more sense to opt for the partial student loan repayment deductible. During this period, the student only pays the insurance premiums and interest in full. The repayment of the student loan therefore begins at the beginning of the loan but the repayment of the granted capital will not begin until the end of the franchise period, that is to say at the beginning of the working life. Binding, it imposes fees on the student even before the end of his studies. However, in the end, it remains less expensive than the total deductible since the interest will ultimately be less substantial. This is why this solution should be favored by those benefiting from regular income, for example students who hold a small job in addition to their studies.
If the student does not wish to benefit from a deductible, he can choose the repayment of the immediate student loan which begins the month following the release of funds. The borrower then finds himself paying monthly payments that take into account the total cost of the loan: capital received, interest, insurance. However, the amount of reimbursements can never exceed 1/3 of the student's income which may correspond to scholarships, the salary of a student job, family financial aid, etc.
A large inflow of money is always possible in the life of a student. Since student credit is a personal loan, it makes it possible to benefit from the Scrivener law of 1978 which offers the possibility of prepaying the credit, totally or partially, without paying compensation. This modality therefore makes it possible to arrive more quickly at the end of the repayment of the student loan. However, it is necessary to monitor the contract when taking out the loan to verify that the prepayment without compensation is indeed planned - it is therefore strongly advised to always negotiate the elimination of the prepayment indemnities (IRA).
Therefore, several types of student loan repayment exist. To guard against unpleasant surprises, it is better to discuss the various possibilities directly with the financial lender and choose the one most suited to your needs. For an average student, who benefits from regular income in particular through a student job, the most advantageous option remains the repayment of the student loan with partial deductible, while allowing himself the possibility of repaying early to reduce the cost of credit. However, most banks also offer adaptations to the duration of the loan during the contract.
Modulation of monthly student loan repayments
As with conventional loans, first of all real estate loans, some banks offer modulation of maturities. It allows you to revise upwards, as well as downwards, the monthly payments during the life of the credit. This only applies when repaying the student loan itself - so either during the amortization phase in the event of a deductible, or when the borrower has chosen an immediate repayment. Offers allowing this are often qualified as "flexible" or "scalable".
In the event of larger contributions, the increase in the amount of monthly payments automatically leads to a reduction in the repayment period of the student loan and therefore in the total cost of the credit. This is why the possibility of modulation must be taken into account by the young borrower when taking out the loan. Correspondingly, the decrease in monthly payments lengthens the repayment period of the student loan and increases the cost of the service. However, this extension is useful in case of financial hardship.
Be careful, faced with the advantages already provided by the student loan, first of all the benefit of a franchise period for a repayment of the deferred student loan, most banks do not offer this possibility. It is generally only granted to large loans with long repayment periods. However, it is necessary to discuss this with the organization and it is not uncommon for facilities to be given to a conscientious client. Also, in the event of repayment difficulties, the repurchase of the student loan is an interesting alternative in the event of subscription to several credits.
The redemption of the student loan
In the event of difficult student loan repayment, young graduates, or even students, may resort to other loans; for example when there is a need to finance his studies but also to pay for a car. However, an accumulation of credits risks creating a financial imbalance.
To find out if he is in a difficult situation, the borrower can use an index called the debt ratio. Used by lending organizations to ensure the good financial health of the borrower, it assesses what the amount of loan repayments weighs in the person's budget. It therefore corresponds to the proportion of borrowings in income. When the debt ratio exceeds 33%, we speak of over-indebtedness. One of the solutions is the reorganization of loans which, to be granted and truly effective, must be requested before having reached the limit of over-indebtedness.
The repurchase, in the event of difficulties of repayment of the student loan, is possible when the student has entered the life of the activity and has resorted to several loans to finance his needs (typically consumer loans). He can redeem his credits and his student loan in order to benefit from a single loan which will allow him to obtain reduced monthly payments by the grouping of debts into one.
It can also concern a student loan guaranteed by parents. Since this type of credit makes it possible to obtain generally more attractive rates than traditional loans, and that it is for the benefit of people who do not have sufficient financial guarantees, a joint guarantee is generally requested by the banks. It guarantees the repayment of the student loan in the event of default by the student: temporarily, the parents find themselves repaying instead of the borrower. Note that it is still possible for another relative to hold the surety and even that there are alternatives to the surety (eg loan guaranteed by the State). The fact remains that in the event of a student loan with a guarantee from the parents, when the latter are requested to compensate for the unavailability of their child, they can make a consolidation of their own credits and thus integrate the student loan.
Conclusion: The various student loan repayment possibilities
Concluding a loan involves the corresponding obligation to repay it. The repayment of the student loan can be done globally in four ways: immediately, with a total or partial deductible, early. In the event of difficulties in repaying the student loan, modulations of the monthly payments are generally possible. However, if this is not enough, the repurchase of the loan remains an advantageous solution; which is also always the case when the borrower has subscribed to several credits, even if he manages to honor them all.