Understanding Student Loans
What are student loans?
Student loans are borrowed money that is used to finance a part of education. These are paid back in the form of interest after one graduates or the enrollment drops below half-time.
What is the difference between federal and private student loans?
Federal: The government provides them, with fixed interest rates and flexible repayment options.
Private loans: Offered by banks or other financial institutions, with variable interest rates and less flexible terms.
How do student loan interest rates work?
Interest rates are a measure of the cost of borrowing. Most federal loans have fixed interest rates, and most private loans have either fixed or variable interest rates. In general, a rate is added to the principal balance in arrears.
When will I begin paying back my student loans?
Repayment generally begins six months after you graduate, withdraw from school, or are enrolled less than half-time for federal loans. Private loans are another matter.
Repayment Plans
What are the repayment plans for federal student loans?
Standard Repayment Plan: Fixed monthly payments over 10 years.
Graduated Repayment Plan: Payments start off low and rise over time.
Income-Driven Repayment Plans (IDR): Payments are based on income, such as REPAYE, PAYE, IBR, and ICR.
Extended Repayment Plan: Longer repayment period for larger loan balances.
What is an income-driven repayment plan?
An IDR plan adjusts monthly payments based on your income and family size, often lowering monthly payments but extending the repayment term.
Can I change my repayment plan later?
Yes, you can change repayment plans for federal loans anytime, depending on eligibility. Private loans usually offer limited flexibility.
Managing Loan Payments
How much do I pay every month?
The federal loan repayment is determined by the repayment plan chosen. The private loan depends on the terms set by the lender. Both can be estimated with online calculators.
What happens if I miss a student loan payment?
Missing a payment can incur late fees, damage your credit score, and even lead to default if not caught. Call your loan servicer to explore deferment or forbearance.
How do I make it easier to pay my loans?
Automate payments to avoid missed deadlines, create a budget, and focus on high-interest loans.
Can I pay off my student loans early?
Yes, paying off loans early saves money on interest. Always check whether the lender has prepayment penalties.
Can I reduce my monthly payments?
Switch to an income-driven repayment plan, refinance, or extend the repayment term if you are not able to make payments.
Loan Forgiveness and Relief
What is student loan forgiveness?
You would qualify for programs like Public Service Loan Forgiveness (PSLF), which discharges the remainder of the borrower’s loan after he or she has worked qualifying jobs and completed qualifying payments within 10 years.
How is it that someone qualifies for this Public Service Loan Forgiveness? You need to work for some government or the qualifying nonprofit and make 120 qualifying monthly payments under a qualified repayment plan.
Are there other loan forgiveness programs besides PSFL?
There are also the Teacher Loan Forgiveness programs that forgive loans on teachers in low income schools after they have worked in those schools for five years, among other examples.
What’s deferment and forbearance?
Deferment and forbearance means you are eligible to temporarily avoid or reduce making payments. There may still accrue interest with your loan though, depending upon the type.
How do I apply for student loan forgiveness?
Look into the forgiveness programs that you qualify for, file the application forms, and keep up-to-date records of employment and payments.
Refinancing and Consolidation
What is a consolidation for student loans?
Consolidation of federal student loans integrates several federal student loans into one with a weighted average interest rate, therefore keeping your repayments simple.
What is refinancing of student loans?
Refinancing means taking out a new private loan to pay off your existing loans, possibly securing a lower interest rate. This is only available for private loans or a mix of federal and private loans.
Should I consolidate or refinance my student loans?
You may want to consolidate federal loans if you like the idea of simple payments, but refinancing may give you better rates. However, when you refinance federal loans with a private lender, you forfeit federal protections.
Should you refinance federal student loans?
When you refinance, you can lower your interest rate, but this will eliminate federal loan benefits such as income-driven repayment plans and loan forgiveness. Weigh this trade-off carefully.
How do student loans affect my credit score?
Making timely payments will help your credit score, while missed payments or defaulting will harm it.
Can I discharge my student loans in bankruptcy?
Student loans are difficult to discharge in bankruptcy, but you can prove “undue hardship” in rare cases to qualify for discharge.
How do I manage multiple student loans?
Organize your loans by interest rates and repayment terms, consider consolidation for simplicity, or pay off higher-interest loans first to save on interest.
How can I improve my credit while managing student loans?
Pay on time, keep credit card balances low, and avoid taking on too much new debt.