Millions of Americans take out student loans every year to pay for higher education, but what is the impact? Learn everything you need to know about student loans, including how to pay them off and alternatives to consider.
To apply for federal student aid, you must first complete and submit the Free Application for Federal Student Aid (FAFSA) form. The results of the FAFSA form will be sent to your college or career school, and they will decide whether you qualify and how much of a loan you will receive. Private student loans, on the other hand, are issued by banks, credit unions, and other lenders based on your credit profile. The application process will depend on the lender.
The U.S. Department of Education sets limits on how much you can borrow each year. If you are an undergraduate student, the maximum amount you can borrow annually in subsidized and unsubsidized loans ranges from $5,500 to $12,500 per year, depending on your grade level and dependency status. For graduate or professional students, you can borrow up to $20,500 annually in direct unsubsidized loans. Direct PLUS Loans can also be used for the remaining college costs, as determined by your school. Remember, you should only borrow what you need to pay for the higher education at hand.
Student loan forgiveness gives you the opportunity to not have to pay back some or all of your federal student loan debt. To qualify for help with repayment, there are very specific eligibility requirements that you have to meet. The most common way to get your loans forgiven is if you repay loans as part of an income-driven repayment plan.
Federal student loans are more common than private student loans, as they are offered by the U.S. government and follow a strict standard. With federal student loans, the terms are uniform and apply to everyone receiving them. Private loans, though, have varying terms and criteria, based on individual lenders as well as the circumstances of the borrowers.
The average student loan borrower will spend 20 years repaying their loans. However, how long it actually takes to pay off your loans will depend on where you went to college, as well as your degree level. Attending a more expensive school or pursuing a postgraduate degree through student loans, for example, will increase your timeline for repaying the debt. Generally, higher balances take longer time to pay back.
Student debt is money you borrow to pay for college education costs such as tuition, books, and living expenses. For many borrowers, student debt is a necessary way to deal with increasing college costs. Student debt includes any loans you take out to pay for your college education, which you’ll repay with interest at a later date.
Debt consolidation is using one loan or credit card to pay off multiple loans or credit cards so you can simplify your debt repayment. With one balance instead of many, it should be easier to pay off your debt and, in some cases, secure a lower interest rate from the lender. When it comes to student loans specifically, this arrangement can be beneficial if you have multiple student loans with different servicers. Student loan consolidation is available for private and federal loans.
Defaulting on a loan means you have failed to make sufficient payments for an extended period. Lenders will deem a loan in default when you haven't paid the minimum required payment for a certain number of months in a row, as detailed in your loan contract.
When a lender applies a subsidy to the interest portion of a loan on behalf of the borrower, it's defined as a subsidized loan. The lender generally pays the interest charges on the loan during certain periods. The subsidy has the effect of reducing the borrower's periodic loan payment in periods during which it is applied, thereby making loan payment more manageable, lowering the total cost of the loan, and saving the borrower money. Federal student loans are the most common type of subsidized loans.
With an unsubsidized loan, you are also responsible for paying all of the interest on the loan from the time you first receive the money until the balance is completely paid off. Any unpaid interest will be added to your total balance, which will increase the amount of ongoing interest you must pay.
Student loan forbearance is the temporary suspension or reduction of student loan payments. During a forbearance period, you're not required to pay anything toward the principal on your student loans. Interest can continue to accrue on your loans and be capitalized or added to your balance at the end of the forbearance period.
Refinancing involves replacing an existing loan with a new loan that pays off the debt of the first one. The new loan should ideally have better terms or features that improve your finances to make the whole process worthwhile. You can refinance and consolidate your student loans, allowing you to save money on interest and make payments more manageable.
In-school deferment is a temporary postponement of repayment of federal student loans that students can obtain while enrolled in school, and in some cases, for six additional months after they cease to be enrolled. It allows you to ease your financial burden while you're in school and focus on your education.
Great Lakes Student Loans is a student loan servicer that contracts with the U.S. Department of Education. As a servicer, the company is responsible for helping borrowers manage billing and payments for federal student loans. Great Lakes Student Loans handles nearly 15% of all federal student loan accounts.
The FAFSA—or Free Application for Federal Student Aid—is a form that current and prospective college students in the U.S. must fill out to determine their eligibility for student financial aid. The FAFSA opens on Oct. 1 for the following school year, and it is best to fill it out as early as possible.
A student loan deferment is an arrangement allowing you to postpone or reduce loan payments temporarily without damaging your credit score. There are various circumstances you must be in that enable you to qualify for deferment. For example, you may qualify if you are undergoing cancer treatment or if you are an active member of the military. Deferment will make your repayment period longer, and it is important to weigh all other options before considering it.