When you were deciding how to finance your education, you probably became intimately familiar with the jargon and acronyms involved with student financial aid — FAFSA, EFC, Pell grants, disbursement, etc. At the time, you may have just been eager to finance your education and didn’t worry too much about the details. If you’ve now started paying on loans, or payoff is in the near future, there’s an entire glossary of words you’ll want to become familiar with.
Consolidation: You may be able to combine your Direct Federal student loans into one consolidated loan, which could mean one payment that may be less than the payments for each loan separately. Consolidating loans may also extend your loan period, which could mean lower payments but more interest being paid in the long run.
Default: If you fail to pay your student loans in accordance with the promissory note you signed when you accepted the loans, they will go into default. Consequences could include collection procedures, negative credit reporting, and more severe legal consequences.
Deferment: A deferment can allow you to postpone your federal student loan payments on a temporary basis if you meet certain criteria. Deferment reasons may include returning to school, unemployment, active service in the U.S. armed forces during war time and more. Direct Subsidized loans are not charged interest during deferment, while Unsubsidized loans will continue to accrue interest. Contact your loan servicer for more information.
Forbearance: For those who don’t qualify for deferment, forbearance is another method of temporarily reducing or suspending federal student loan payments. Reasons for forbearance may include financial hardship, illness, being called to active duty in the U.S. armed forces, serving in a medical residency or internship, and more.
Grace period: When you graduate, begin attending school less than half time, or drop out altogether, your student loans become due. You have an automatic six-month grace period before you have to begin repaying your Direct Federal student loans. Private loans may not offer such a grace period and PLUS loans do not have a grace period. The grace period begins the day you graduate, withdraw or carry a less-than-halftime class load.
Perkins Loans: These low-interest loans are available to undergraduate and graduate students with “exceptional” financial need through the school. The school is the lender and payments are made to the school. Not all schools have Perkins Loans available.
PLUS loan: This is a federal loan available to creditworthy graduate students and parents of dependent undergraduate students. Interest is charged and payable even while the student is in school.
Private/alternative loans : These are not federally funded loans. They are usually used if there are still gaps in education financing after scholarships, grants, and federal student loans have been used. The terms aren’t usually as favorable with regards to repayment options, interest rates, etc.
Repayment plan: You have several options when paying back your Direct Federal student loans, including:
- Standard repayment: You will pay the same amount every month, at least $50, and you’ll have up to 10 years to pay the loan or loans off.
- Extended repayment: If you have over $30,000 in loans, this may be the plan for you. It allows for smaller payments over a longer period of time. It’s important to note that you most likely will end up paying more interest over the life of the loan.
- Graduated repayment: If you think your financial situation will improve over the next few years, this may be the way to go. Payments start out low and increase every two years.
- Income contingent repayment: Payments on this plan are based on your income, and there are three plans available depending on your situation.
Stafford Loan: These are the most common Direct Federal student loans which are applied for by submitting the FAFSA (Free Application for Federal Student Aid). The lender is the U.S. Department of Education through the Federal Direct Loan Program. These loans are not credit based and can be either Subsidized or Unsubsidized.
Subsidized Direct Loans: Available to students with “demonstrated financial need,” these loans have a relatively low interest rate and the interest is paid by the federal government (subsidized) while the student is enrolled in school, during the grace period, and during any deferments.
Unsubsidized Direct Loans: These loans also offer a low interest rate, however interest accrues while the student is enrolled in school. The borrowing threshold is a bit higher for these than the subsidized loans, and they aren’t need based. You can make interest payments while in school, grace or deferment, or the interest may be added to the balance upon the loan becoming due.
Learn more about federal student loans and the best way to repay them at www.Direct.Ed.Gov.
This post was written by Kristin Marino of Schools.com, an interactive site that provides students and prospective students with information on degree programs and schools. Visit us at www.schools.com, or on Facebook and Twitter.
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