meeny's Blog

In recent years, the rising educational costs have made students to apply for student loans. A student not only has tuitions fees to pay, but also costs of books, cell phones, gas, meals and recreation.

At present, banks and financial institutions offer different types of student loans that enable you to take care of your varying college expenditures. However, you need to repay this loan within a specific period or else you have to bear extra additional costs.

Types of Student Loans:

Below discussed are different types of student loans offered by various banks and financial institutions:

Direct Student Loan: This loan comes with a fixed schedule of repayment term ranging from 6-9 months, once you complete your college or school. Often, banks offer this loan through schools to regular school students. Often, the rate of interest on this loan is less.

Guaranteed Student Loan: At times, this loan is also called as Stafford loan. It comes with a reduced rate of interest. You can apply either for a subsidized student loan or for unsubsidized student loan. In a subsidized student loan, the government comes forth to pay your interest amount, when you are in school. Next, based on your financial needs, banks offer you subsidized student loan. On the other hand, in an unsubsidized student loan, you ought to pay the interest rate, when you attend the high school. You need to start paying your principal loan amount, once you pass out from your college.

PLUS Loan: These loans are also known as Federal Parent Loan. Usually, banks do not offer this type of loan based on your earning, but some lender do consider your personal credit history. Parents or custodians with a dependent kid enrolled in high school are entitled for this loan. Usually, banks charge interest rate of 9% or less on the PLUS Loan.

Private Loan: Generally, private lending institutions offer this form of loan. If federal student loans do not cover your financial needs, consider private loans for students as a secondary source of funds. As other personal loans such as car loan or home loans, private loans are also offered based on your present credit status, therefore, if you hold good credit standing, banks approve your loan without asking any question.

If you have a bad credit, a cosigner is required to get your loan approved. Unlike other standard loans for students, this is an instant process to obtain funds. Terms and conditions vary from one lender to another, so ensure to find the best option for your financial needs.

Borrow only the amount that you need for educational purpose. Before signing on the dotted line, ensure to know all the terms and conditions applied on that loan. Whether you apply for a private or a guaranteed student loan, you have to be prompt in your loan repayment, as irregularity in loan settlement hurts your credit history. More significantly, student loan plays a vital role in your credit history, so ensure to choose the best one.

If you are running out of cash to pay for your school expenses like books, tuition fees, dorm fees and some other miscellaneous fees you can always get a loan. Student financial aid direct loans are a program offered by the Education Department to students who needed help to get through college. It is a simple and inexpensive way of lending money to students to pay for their students after high school. If your school recognizes this kind of student loan, then you will need to complete what so called a master promissory note to qualify for this loan. The master promissory note would explain the loan terms and would serve as the legal binding agreement that you need to repay the Department. One god thing about this type of student loan is that you may switch your plan when your needs change.

Getting through college had been made easy for you, and you do have four repayment plans to choose from: the standard, graduated, income contingent and extended. These four options would help you decide which plan is suited for you. The standard plan allows you to pay a fixed amount monthly until you have paid your loan in full. You can pay as low as fifty dollars a month and you will have until ten years to repay your loan. The Standard plan would be good for the borrower if he can manage to have a higher monthly payment because that would mean you can repay your loan quicker.

Another payment mode is the graduated repayment. This plan allows you to start at a low monthly payment, but it would increase every two years. You can repay for your loan up to ten years. This plan would be good for you when you expect an increase in your income over time.

The income contingent repayment is a very flexible plan that helps you get through undue financial hardship. This is how your monthly payments will be calculated yearly: the monthly payment will be calculated based on your adjusted gross income (ad that includes your spouse's income if you are married), the size of the family and the total amount of your loan. Under income contingent repayment program, you will pay monthly the lesser of the amount you would pay if you managed to repay the loan in twelve years multiplied by an income percentage factor that may differ from your annual income or your monthly discretionary income which will be multiplied by twenty percent. The monthly discretionary income is equal your adjusted gross income less the poverty level of the family size divided by twelve which is then figured out by the Health and Human Resources Department. The maximum repayment time for this is twenty-five years. if you are enrolled under the standard or extended plan and decided to switch to ICR later, the period under the former plan is counted towards your twenty-five year repayment period. If, after twenty-five years and you still haven't fully paid your loan under this plan the unpaid portion will be discharged. However, you need to pay taxes for the discharged amount.

The cost of pursuing further education is increasing each day. Moreover, in present days if you wish to obtain a high paying job, you need to have higher qualification. Hence, keeping this thing in mind, most financial institutions have come up with affordable student loans. As a result, most students opt for student loans to finance their studies.

Thus, if you wish to obtain student loan, you need to be aware of the repayment option too. Repayment option is the most imperative factor, whish you tend to ignore, while applying for loans. The terms of repayment are confusing as well as overwhelming. So, to help you out, here is a complete terminology of student loan repayment.

Understanding the Student Loan Repayment Terms:

Grace period

Grace period is a time limit, determined by the loan companies, before allotting the loan amount to you. When you complete your education or drop half way before completing the studies, you need to start repaying the loan. Grace periods of student loan varies from one financial institution to other and depends on the student loan type.

For instance, one loan company may offer you with a grace period of 6 months, whereas other may keep the grace period as nine months. However, there are some companies, which do not have grace period at all.

Deferment

Student Loan repayment consists of another important option called as deferment. Through deferment option, you can temporarily postpone the loan payments. Most companies offer deferment of three years on student loans. If you do not have a job or are facing financial hardships, then opt for loan deferment.

Things to note

After completing studies, if you opt for loan deferment, federal government pays the interest on your student loan. However, if you opt for other types of student loans such as unsubsidized loans, then you will have to pay the interest after the completion of deferment. In the latter case, companies add the accrued interest of deferment period with the principal loan amount.

You will have to pay the accrued interest along with the principal amount. To avoid paying the interest, you may select the option of paying the interest during deferent time and after completion of deferment period, you can pay the remaining amount.

Forbearance

Forbearance gives you the option of postponing your loan repayment for temporary time. Within the forbearance duration, you need to pay all the interest accrued due to non repayment of loan.

Terminology of Repayment Plans:

Extended repayment

Extended repayment allows you to extend the loan according to your convenience. If you have any federal loan, which totals more than $30,000, then you can even extend the loan term to 25 years. However, loan companies will consider your loan amount before granting you extended repayment.

Graduated repayment:

In graduated repayment, you need to pay lower loan installments at the start of your repayment tenure and gradually increase the monthly installment sum over time.

Income-sensitive loan repayment

In income sensitive student loan repayment, loan companies will consider your monthly salary and fix the monthly student loan installment. However, you will have to submit the credentials and your income proof to become eligible for this type of repayment option.