Student Loan Guide

For the latest update visit US Department of Education

Key Terms

Student loans have been a hot topic lately, given the promise of forgiveness and the legal battles going on to block the forgiveness. Currently 70% of undergrad students have some form of loans.

Loan Forgiveness: when you are no longer obligated to repay the remainder of your loan. 

To understand and manage your student loans you'll need to know a few terms:

Principal: the amount that the loan was taken out for initially

Interest: the amount you pay on top of the loan in exchange for having the loan - essentially just the fee for borrowing money

Balance: the amount you have left to pay on your student loan principal - basically the total loan amount minus the amount you have already paid towards the principal. 

Interest Rate

The amount of interest that you pay on your loan is determined by your interest rate, which is the percentage that your loan grows each payment period. Your loan may have a fixed interest or a variable interest rate.

How much interest you wind up paying in total is determined by:

1. the interest rate percentage,

2. how big your loan is, and

3. how long you take to pay it off:

Fixed Interest: a kind of loan where the interest rate remains the same for the life of the loan unless:
- you consolidate or refinance, 
-  or change repayment plan type. 

Variable Interest: a kind of student loan where your interest rate will change over time, meaning the amount of interest that accrues during each payment period can change. 

Types of Loans

Federal Loans

Your loan money comes from the government, which means there are more legal regulations that you have to deal with.

Private Loans

your money comes from private banks, credit unions, or other financial institutions, so these private lenders have more control over your loan.

It is possible that you could have both types of loans.

Subsidized vs. Unsubsidized

These are loans that tend to be based on financial need, while unsubsidized loans are available regardless of financial need.

The main difference, is that interest starts building right away for unsubsidized loans, while subsidized loans won't start gaining interest until after you graduate.

Subsidized

• Based on financial need

• Interest accumulates after graduation

Unsubsidized

• Available to everyone regardless of financial need

• Usually provided by private financial institutions

• Interest will accumulate while you are still in school

Federal Loan Types

The type of loan you are awarded depends on your personal financial situation. There are a few different types of federal loans that are offered.

Direct Loans

the most common type of loan from the government. This loan has both subsidized and unsubsidized versions.

PLUS Loan

a loan from the government with a higher interest rate - this is a good back up option for anything not covered by direct loans.

Perkins Loans

a loan that the government stopped providing in 2017, which included loan forgiveness options.

Disbursement

The official start of your loan is called the disbursement. This is when the loan is paid from the lender (either the government or a financial institution) to your school. You won't have to start paying back your loan until after you graduate.

Both federal and private loans have a grace period after graduation (usually a few months) that gives you time to prepare to pay back your loans.

Payment Schedule

When you setup your repayments, you'll determine your repayment plan & schedule - the timeline for paying off the loans.

If you miss one of these payments, you'll be charged a late fee, usually around 6%, which can add significant money to your owed payment. If you continue missing payments, your loan will go into default.

Late fee: charges for delayed payments, a charge issued if you pay after your due date. 

Default: when you fail to complete the required loan payments or are continuously late with your payments your loan administrator may place your loan in default status.  If you default, you'll end up owing a lot more in penalties and fees.  It'll also be big hit to your credit score.  

Repayment Plans

There are various options for how to repay your private and/or federal loan.

Private Loans

With private loans you'll pay a fixed monthly payment over a fixed amount of time, calculated by the bank.

Federal Loans

With federal loans, you'll have the options to choose the standard plan, or to make flexible payments based on your income to ensure that your monthly payments are affordable.

FSA Account

Everything regarding your federal loans is handled through your Federal Student Aid (FSA) account.

You can log in using your FSA ID. This account is where you can:

• contact your loan servicer/administrator,

• make payments and

• check the status of your loans.

If you are creating an account you'll need personal information including:

• name

• date of birth

• social security number

• phone number

Loan Servicer

From your account, you can identify your loan servicer. You don't get to choose, they are just assigned by the Department of Education.

Your servicer will help you select a repayment plan, and they are there to discuss any issues with your loans. Your servicer's contact information can be found in the Student Loans Portal.

Repayment Options

When it comes to repaying your federal student loans you have two options depending on your circumstances which may make more sense for you. Remember if you don't select a repayment plan it will default to the standard plan. If you aren't sure which option is best contact your loan servicer.

Standard Repayment Plan

The default repayment plan for federal loans on which you make equal monthly payments for 10 years.

Pros:

Save money over time, because you'll pay off the loan in the shortest amount of time.

Cons:

Higher monthly payments that may stretch your budget

Income Driven Repayment Plan

A student loan repayment plan that sets your monthly payment relative to your take-home income and family size, meaning you won't be asked to pay more than you can afford.

Pros:

Affordable/lower monthly payments

Caps monthly payments to a percentage of you discretionary income

Cons:

You'll pay higher interest over the term of the loan

These plans usually have higher interest rates attached to them

4 Income Driven Plans (Government)

There are 4 different types of income driven repayment plans. Each of these plans has a different:

• monthly payment structure

• repayment period

• criteria to qualify

Pay As Your Earn (PAYE)

• Caps your monthly payments at 10% of your discretionary income

Revised Pay As You Earn (REPAYE)

• similar to PAYE with a cap at 10% of your discretionary income, however this plan is available to more borrowers

Income Based Repayment (IBR)

• The most widely available income based plan

• Payments are capped at 15% of your discretionary income, unless you are a new borrower, in which case they're 10%

Income Contingent Repayment (ICR)

• Designed to assist those with lower income. This plan takes into consideration your

  • income

  • family size

  • and total amount borrowed

Private Lenders Repayment

If you need to find your loan servicer, you can contact:

• schools financial aid office

• or review your credit report

Grace Period

During the grace period, you should be getting ready to make monthly repayments on your loan.

Loan Agreement & Repayment Options

There aren't many repayment options for private loans. Your repayment plan will be determined by the bank or other financial institution that you took the loan from. The terms of the repayment are outlined in your loan agreement.

Loan Agreement

Unlike federal loans, there isn't one central hub for private loans, so you have to go through each individual provider.

You can find your loan agreement on your loan providers online portal. Each loan agreement will outline the interest rate and repayment period of the loan.

It's really important to read through the terms to understand the options, responsibilities, and consequences of your loan.

If you have multiple private loans you'll need to find each loan agreement for each loan.

Private Loan Repayment Options

• repaying the loan as outlined in the loan agreement

• negotiating more favorable terms with each loan provider

• refinancing your loans with another financial institution

  • When you refinance, you will find a financial institution, and ask the financial institution to either consolidate and refinance or you'll have to refinance each loan. . The institution will provide you with paperwork or an online web portal to complete your information. This will determine if you meet eligibility and qualification requirements which will take into account your credit score.

Online Repayments

The easiest way to make payments is online for federal loans, this is through the FAS portal. For private loans, create an account on your loan provider's online portal.

Connect your banking information for easy direct deposit payments. You'll need to locate your account number and routing number. These are can be accessed by paper check or in your online bank account web portal.

TIP: Setup automatic payments or a calendar reminder so you are on time with all of your payments.

Loan Forgiveness

We defined loan forgiveness earlier in this article and are hoping the government succeeds in providing this benefit to millions of Americans. This could greatly benefit their credit score and provide relief in day to day expenses and planning for short and long term goals.

In August of 2022, President Biden announced that many people with federal student loans would have a big chuck of their loans forgiven. This means you'll never have to pay them back, they'll be erased like magic!

• Most people will qualify for up to $10,000 in loan forgiveness

• If you have a Pell grant, you could qualify for up to $20,000 in loan forgiveness

It is important to note that the loan forgiveness program is only applicable to government or federal loans and not available for loans received from a private servicer / financial institutions.

Qualifying

In order to qualify for loan forgiveness, you need to have:

• A federal loan - subsidized or unsubsidized for undergrad, graduate school, or even a Parent PLUS loans.

• Loans that had an outstanding balance as of June 30, 2022

• Made under $125,000 as an individual or $250,000 as a couple in either 2020 or 2021

  • You still qualify if you made above the threshold 1 of those years, as long as you were below the threshold the other year.

How To Apply

You'll need to apply for student loan forgiveness, the government needs to have a record of your income to verify that you qualify.

The application was released on October 14th 2022. You'll have till December 31st, 2023 to apply. Click here for the application and latest information.

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