Student Loan Basics FAQs

Navigating the ins and outs of student loans can seem overwhelming, but don't worry, we're here to help simplify things for you. These FAQs will empower you with the knowledge you need to make smart choices and manage your student loans effectively.

Let's dive into the fundamentals of student loan borrowing and get you on the path to financial success!

There are two types of loans: Federal and Private.

Federal student loans are provided by the government and have set terms and conditions defined by law. They offer benefits such as fixed interest rates and income-driven repayment plans, which are not typically available with private loans.

On the other hand, private loans are offered by private organizations like banks, credit unions, and state-affiliated entities. They have terms and conditions determined by the lender and are generally more expensive than federal loans.

These are the loan types:

Available to undergraduates with demonstrated financial need. The loan amount depends on the number of years in school, starting at $3,500 for freshmen, with a fixed interest rate of 4.53% APR.

Available to undergraduates, graduate students, and professional students without financial need. The loan amount increases each year of college, starting at $5,500.

Available to parents of dependent undergraduates, graduate students, and professional students. PLUS loans have a fixed interest rate and require a credit check. Parents take out these loans on behalf of their children, and repayment must begin immediately without a grace period.

Loans provided to eligible undergraduate students with demonstrated financial need to cover higher education costs at a college or career school.

Loans available to eligible undergraduate, graduate, and professional students, regardless of financial need.

Loans offered to graduate or professional students and parents of dependent undergraduate students to cover education expenses not covered by other financial aid. Credit check is required, and additional requirements apply for borrowers with adverse credit history.

Loans that allow you to combine eligible federal student loans into a single loan with one loan servicer.

You can find out whether your loan is federal or private by following these steps:

Subsidized loans are available to students with financial need, and the government covers the interest while the borrower is in school or during deferment periods.

Unsubsidized loans, on the other hand, are not based on financial need, and the borrower is responsible for all interest accrued throughout the loan period.

Income-driven repayment plans are designed to make loan payments more manageable based on borrowers' income and family size. These plans typically cap the monthly payment at a certain percentage of the borrower's discretionary income, potentially providing more affordable repayment options.

Defaulting on a student loan can have serious consequences, including damage to credit scores, wage garnishment, and legal actions. It is important to explore available options, such as deferment, forbearance, or income-driven repayment plans, to avoid defaulting on student loans. Defaulted loans are not eligible for income driven options. We recommend that borrowers review the more details here on next steps you can take.

The grace period is a period of time after graduation, withdrawal from school, or dropping below half-time enrollment when borrowers are not required to make loan payments. Understanding the length and conditions of the grace period allows borrowers to plan for future loan repayment obligations.

Refinancing or consolidating student loans involves combining multiple loans into a single loan with potentially new terms and interest rates. Exploring refinancing or consolidation options can help borrowers simplify their repayment process or potentially obtain more favorable loan terms. However, refinancing your loans means you lose federal benefits.