A student loan is a credit typically offered by financial institutions for students aged 18 to 28 years old. It has an average duration of 9-10 years and an amount of up to 75 000 €.
Duration is important and must be carefully chosen. Indeed, its lengthening may at first glance seem advantageous for the borrower who will benefit from inconsequential 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 young adult’s needs during the years of his schooling. If many students get help from their families, some people may not have the chance or even the intake will not be enough. A loan may be needed and the student benefit packages are tailored to their needs.
There are four main types of student loan repayments: immediate repayment, deductible repayments, prepayment.
The deductible is the period during which the repayment of the student loan is deferred. It covers, in principle, the duration of studies and the payment begins only at the beginning of the active life, from the moment when the borrower begins to get real income.
It lasts on average between 2 and 5 years and is 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 repayment of the student loan strictly speaking. This is the depreciation phase. It is linked to the duration of the chosen franchise since the longer it has been, the shorter the repayment period.
The total franchise
During the course of studies, in case of total deductible, the young borrower will only pay insurance premiums. It is true that the subscription to an 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, …).
The vast majority of banks offer insurance included in the service, for a cost ranging from 0.3 to 0.6% of the amount borrowed. Thus, the repayment of the student loan – that is, paid-up capital and interest – will only be made 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 collected and in turn produce interest.
It is sometimes better to opt for the partial deductible repayment of the student loan. During this period, the student pays only insurance premiums and interest in full. The repayment of the student loan begins therefore from the beginning of the loan but the repayment of the capital granted will begin only at the end of the period of franchise, ie at the entry of the active life.
Binding, it imposes fees on the student even before the end of his studies. In the end, however, it remains less expensive than the total deductible since interest will be less substantial in fine. That is why this solution must be favored by those benefiting from regular income, for example students who occupy a small job in addition to their studies.
The immediate refund
If the student does not wish to benefit from a deductible, he can choose the repayment of the immediate student loan which starts from the month following the release of the funds. The borrower then finds himself paying monthly installments that take into account the total cost of the loan: capital collected, interest, insurance.
However, the amount of the reimbursements can never exceed 1/3 of the student’s income, which can correspond to the scholarships, to the salary of a student job, to family financial assistance, etc …
A big money income is always possible in the life of a student. Since the student loan is a personal loan, it makes it possible to benefit from the 1978 Scrivener Act, which offers the possibility of prepaying the credit, in whole or in part, without paying any compensation.
This modality thus makes it possible to arrive more quickly at the end of the repayment of the student loan. However, the contract must be monitored when the loan is taken out to ensure that the prepayment without indemnity is indeed provided for – it is therefore strongly advised to always negotiate the elimination of the prepayment indemnities (ARI).
As a result, several types of student loan repayments exist. To guard against unpleasant surprises, it is better to discuss directly with the lending financial institution the various possibilities and choose the one best suited to your needs.
For an average student, who benefits from regular income including through a student job, the most advantageous option is the repayment of the student loan with partial deductible, while allowing the opportunity to repay early to reduce the cost of credit. However, most banks also propose adjustments to the duration of the loan during the contract.
Modulation of monthly repayments of the student loan
As for conventional loans, in the first place real estate loans, some banks offer the modulation of maturities. It makes it possible to review upwards as well as downwards the monthly payments during the lifetime of the loan. This applies only to the repayment of the student loan itself – so either during the amortization phase in case of deductible, or when the borrower has chosen an immediate refund. Offers that allow this are often described as “scalable” or “scalable”.
In case of larger contributions, the increase in the amount of monthly payments automatically leads to a reduction in the repayment term of the student loan and therefore the total cost of credit. This is why the possibility of a modulation must be taken into account by the young borrower at the time of the subscription of the credit. Correlatively, the decrease in monthly payments lengthens the repayment period of the student loan and increases the cost of the service. Nevertheless, this extension is useful in case of financial hardship.
Attention, in the face of the benefits already provided by the student loan, in the first place the benefit of a grace period for a refund of the deferred student loan, most banks do not offer this possibility. It is generally only granted to large loans with long repayment terms. However, it is necessary to discuss it with the organization and it is not uncommon for facilities to be given to a conscientious customer. Also, in case of repayment difficulties, the repurchase of the student loan is an interesting alternative in case of subscription to several credits.
The repurchase of the student loan
In the event of a 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. Nevertheless, 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 lenders to ensure the financial health of the borrower, it assesses the amount of loan repayments in the person’s budget. It therefore corresponds to the proportion of loans in income. When the debt ratio exceeds 33%, we are talking about overindebtedness. One of the solutions is the redevelopment of loans which, to be granted and truly effective, must be requested before reaching the limit threshold of over-indebtedness.
The buyback, in case of difficulties in repayment of the student loan, is possible when the student has entered the business 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 that will allow him to obtain monthly payments reduced by grouping debts into one.
It can also concern a student loan guaranteed by the parents. Since this type of credit provides rates generally more attractive than conventional loans, and it is for the benefit of people who do not have sufficient financial guarantees, a joint guarantee is usually requested by the banks.
It makes it possible to guarantee the repayment of the student loan in case of default of the student’s payment: temporarily, the parents find themselves paying back in place of the borrower. It should be noted that it is 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 case of a student loan with parental surety, when they are asked to compensate for the unavailability of their child, they can consolidate their own credits and thus integrate the student loan.
Conclusion: The various student loan repayment possibilities
Concluding a credit entails 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, in advance. In case of difficulties of repayment of 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; this is always the case when the borrower has subscribed to several credits, even if he manages to honor them all.