Types of Student Loans and Repayment Options

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Types of Student Loans and Repayment Options

When you apply for financial aid, you have a lot of possibilities. You can get loans, grants, or scholarships. In this article we will cover loans. A loan is money that you borrow and pay back with interest. Loans are available from many sources: the federal government, state governments, and private sources.

Types of federal student loans

There are four types of federal loans available:

• Direct subsidized loans: These loans are need-based. They are for undergraduate students, up to a certain amount per year. Because they are loans, interest must be paid on them, but the government pays the interest for you while you are in school. That is what is meant by "subsidized."
• Direct unsubsidized loans: These loans are for both undergraduate and graduate students. They are not need-based. Because they are unsubsidized, you must pay the interest on them while you are in school. This means you must factor them into your monthly budget. These loans are available in higher amounts than subsidized loans.
• Direct PLUS loans: PLUS loans are available to two types of borrowers: parents of undergraduate dependent students, and graduate students. The maximum amount you can receive is the cost of attendance minus any other financial aid you receive.
• Direct consolidation loans: These loans are for borrowers who want to combine existing loans into one loan. That makes it simpler to handle. A loan like this may enable you to lower your monthly loan payments after graduation.

There is more detail on federal loans at https://studentaid.gov/understand-aid/types/loans

State loans

State loans are made available by programs in individual states. If you don’t qualify for a federal loan, a state loan may be an option. More information about these loans is available through your state’s office of education.

Private loans

Private loans are offered by non-government sources such as banks, credit unions, and private organizations. Their terms are usually more restrictive than federal or state loans.

Repayment options

After you have finished your higher education, you normally get a grace period of several months before you have to start paying back your loans. During this period, you have hopefully found a job that enables you to make payments. You should treat your student loan just as you would any other loan. Failure to pay has major consequences!

There are several types of repayment options that you can apply for. Each of them fits a specific need and has pros and cons. For federal loans, there are two broad categories:

• Fixed-payment plans: These plans base your monthly payment on how much you owe, your interest rate, and a fixed repayment time period. There are several types of fixed-payment plans, such as a standard plan, a graduated repayment plan, and an extended plan. Each type works differently and has different terms and conditions.
• Income-driven (IDR) plans: These plans base your monthly payment on how much money you make and your family size. They can be beneficial if you are going through financial hardship or if your income is low. There are several types of these plans. Each type works differently and has different terms and conditions.

The terms and availability of these plans can change over time. You can find more details about them at https://studentaid.gov/manage-loans/repayment/plans

School or state loans

If your loan was issued to you by your school or your state, there are repayment options for it. These options differ school by school, so consult yours for details.

Private loans

Repayment for private loans varies according to lender, but in general, you should expect fewer repayment options. Consult the lender to see what you qualify for.

Consolidating loans

If you have several student loans, you might consider consolidating them into one loan for convenience. You can consolidate under a federal program or under a private one. As a general rule, you can consolidate only once, so make sure you get the best deal you can. Under a consolidated loan, you are no longer subject to a variety of different terms and repayment schedules. You will have only one lender, with one set of terms and repayment.

Getting help from your employer to pay back your loans

The amount of student loan debt in the United States is huge; it’s over $1 trillion. Having to pay back student loans means that you have less money available to start a family, buy a home, and other important goals in life. Some employers now offer to help you with your loan payments. Let’s look at a few of them.

• Tuition reimbursement plans: Sometimes you need to get more education as part of your job. Your boss can pay for you to take classes. This not only helps you, but it lets your company keep you on instead of hiring someone new.
• Direct contributions to loan repayments: Some employers will contribute directly to your student loan balance.
• Forgiving loans through public service: The US government can forgive some loans if you work a certain amount of time in a public service job, like a US government job or certain non-profit jobs.

Each of these options has certain requirements and restrictions, and not all employers participate in them.