Understanding Student Loan Repayment

Your Calculations from Start to Finish without Borrowing What You Don’t Need

Getting a student loan is a process that needs a little research. You need to know which student loan you qualify for, who will grant them to you, plus how you’ll get it. So in this article, we’re going to address some of the things first-time borrowers need to know if they are residing in the U.S, and if they plan to repay their loan (which they must do).

Understanding student loan repayment

Determine how much you need to avoid repaying what you cannot afford. You see, financing your education with borrowed money is a very serious undertaking. For every $10,000 you borrow, you’ll pay $115 every month until you complete the payment. Because loans must be repaid, you need to know just how much you need. To save money this way, consider the following:

-Could you get the same quality of education in a cheaper school?
-Have you investigated scholarship awards available?
-What luxuries can you do without to avoid borrowing beyond what you need?

You can maximize your federal aid by knowing the different types of student’s loans available out there. This also saves you from paying huge interests in the future. Here are the options currently available:

(a) Stafford loans
These are considered the most common federal loans for students. You can have them subsidized or under-subsidized.

(b) Perkins loans
These are low-interest loans you can be awarded by the institution if you demonstrate exceptional abilities

(c) Plus loans
These will cover expenses that federal loans are not able to cater for.

(d) Consolidation loans
With this option, you can combine all your pre-existing loans into one new loan, then pay on a flat rate.

(e) Institutional loans
These are non-federal loans that institutions offer to students

(f) Private loans/state loans
These are not federal loans. If you didn’t qualify for federal aid, then you can apply for this type of loan.

All the above loans will be awarded to both U.S citizens and qualifying non-citizens. Also keep in mind that limits to which you can be given a loan also varies with the student level or year. So for example, Stafford loans (subsidized) offer between $3,500 for first years and $5,500 for 3rd year students. This information can be checked with the relevant department once you identify the type of loan that best suits you.

Know the key industry players in the game
It’s a good idea to know the organizations and people connected to your federal student loans. American Student Assistance (ASA) is one such organization that specializes in helping students understand the key differences.

The different programs available
We have two federal student loan programs namely The Federal Family Education Loan Program, also known as FFELP. Then there’s William D. Ford Federal Direct Loan, also known as DL Program. The main difference between the 2 is this:

-Students will directly borrow from a private lender, who is FFELP.
-In this second option, you are directly borrowing from the U.S Department of Education, courtesy of DL.

When do you repay these loans?
Of course you’re expected to pay back after you finish school, or you drop below half-time enrollment. On the other hand, Plus loans usually enter repayment mode the moment the loan is fully disbursed. In line with this, your lender will state when they expect you to start repaying for the loan, the amount and frequency of payment, etc. However, there’s also a grace period if you are not able to meet these requirements.

Grace period
This is the time frame in which you must pay your loan after you leave school, drop below half-time enrollment, or graduate from school. It gives you time to settle financially before taking the next course of action. However, not all federal loans have grace period. So they will assume, and your interest will accrue throughout this period.

Both subsidized/unsubsidized Federal Stafford loans and direct subsidized/unsubsidized loans will have a grace period of 6 months. On the other hand, plus loans don’t have grace period, so they will count as soon as they are fully paid out. However, students may qualify for deferment. Contact your loan provider for more information on this.

And finally, when you receive a Federal Perkins loan, check with the institution in which you’ve received the loan. You also have the option of cancelling your loan as soon as it arrives and you realize you no longer need it. This can be done within 120 days disbursement. The money will return with no interest or any fees on your part to pay.

Today’s Student Loan Repayment Programs