Everything You Need to Know about Student Loans

Congrats! You’ve completed (or are working on) some of the hardest four (or more) years of your life. You’ll walk across the stage and receive a nice piece of paper representing all your hard work, but for what feels like forever you’ll be receiving even more, less exciting pieces of paper charging you for it.

Currently about 44 million Americans owe student loan debt, adding up to about $1.4 trillion of debt combined. That’s a lot of money now weighing on your shoulders. Luckily, your degree has probably earned you a higher paying job, but it can still be difficult to manage monthly payments that could range up to $1000 for who knows how long! But with more insight into what you have to pay, you’ll have a greater understanding of how to manage it all, and maybe save yourself some money and stress. So, we’ve got you covered with everything you need to know about student loans, before you take them out, and after school when you’re ready to pay them off.

Before Taking Out a Loan

The better you understand the concepts of student loans, the better help you’ll have with your borrowing choices and repayment plans down the road.

1. Key Term FAFSA The first step in seeking financial aid for college is filling out the Free Application for Federal Student Aid, commonly referred to as the FAFSA. The form is required for all types of government sponsored financial aid, like state grants, work-study funds and federal student loans. It calculates your level of financial need and helps colleges to understand how much financial support you’ll need in order to attend that school.

    Loan Principal

   The principal is the amount that you are borrowing that you need to pay back. Literally - the definition of a loan.

    Interest Rate

   Your interest rate is what the lender charges you for said loan, calculated as a percentage of the principle. The longer you take to pay it back, the more interest you’ll accumulate.

    Credit Score
   

   Your credit score is an indicator of how reliable you are with your payments and helps lenders to know if giving a loan to you is a good investment. The higher your credit score, the more likely you are to be repaying fully and on time, thus, the more likely to be approved for a loan.

• Types of Loans As mentioned above, there are multiple types of loans. It's important to understand each of these, because it’ll affect how much it will cost, how you handle repayment, and more.

   Subsidized Federal LoansThese are loans offered by the government but limited to those who exhibit financial need. The great thing about these is that the government will pay the interest on these loans while you’re still in school, and for six months after during what is known as a grace period. With federal loans, you are sometimes able to delay repayment up to a year if you’re experiencing a lot of financial difficulty.

   Unsubsidized Federal Loans

  These are more widely offered, but the benefits aren’t as great. You’re responsible for paying the interest, even during your grace period. But hey- a little help is better than none!

   PLUS, Loans

  The government grants PLUS Loans to students receiving their graduate degree (or to parents of any dependents receiving their degree). Often paid directly to the school, these loans cover tuition and room and board, while any leftover money is given to you (nice!) Repayment on these kicks in as soon as they’re given out, but they can generally be deferred. And like unsubsidized loans, you’ll be the one responsible for paying the interest.

   Private Loans
  

  These will usually come from banks or schools but can come from any sort of lender. Private loans play by different rules than federal loans, and you may have to have a co-signer and pay higher interest rates, but you can also use them in conjunction with federal loans to fill in wherever the government isn’t covering you.

• Repaying Your LoanLike figuring out the types of loans you want and are eligible for, figuring out how to best repay your loans can be overwhelming if you don’t understand the terms.
• Other important key terms Grace PeriodThe 6-month period after graduation during which you are excused from paying back federal loans.

   Consolidation
  

  Combining several loans into one larger monthly payment. This makes it easier to manage but can mean you’re paying off loans for longer.

   Deferment
  

  A temporary suspension of loan payment, usually for only up to one year, that puts paying back your loan principal on hold, but you will still accumulate interest.

• Types of Repayment Plans Standard Repayment
  For up to 10 years, you’ll pay a fixed amount of at least $50 a month. This offers the least interest.

   Graduated Repayment

  In this case, your payments will start off low and gradually increase every two years. The idea is that this payment plan will match your income - assuming that you are gaining a higher income as time goes by.

   Extended Repayment
  

  Stretching out repayment of federal student loans over up to 25 years, helping those with financial difficulty who cannot repay it all quickly, but will accumulate greater interest throughout the years.

   Income-Based Repayment
  

  The repayment period again is 25 years but is capped based on your income to something best affordable to you, and if after 25 years you are left with a balance - you have the potential for the balance to be forgiven.

• Repaying more than one loanIf you’ve taken out more than one loan, you’re probably nervous as to how to handle it all and which to repay first. The general advice is to focus on paying off your private loans first, and then tackle your federal loans. Why? Private loans are variable and can raise, and the private lenders don’t legally need to work with your financial situation unlike the government. So, having only your federal loans left will give you a little more leeway in times of trouble.

  So, go ahead and work on getting those higher-interest private loans out of the way, while meeting your minimum payments for federal loans, and then prioritize your loans in order of highest to lowest interest rate so things don’t get out of hand overtime.

  We know that dealing with student loans can be difficult, but just keep track of all your payments, and contact your loan servicer if you’re feeling overwhelmed. The last thing you want is to be managing it poorly and end up paying multiple times the amount you were lent in the first place.