Student Loans: Know Your OptionsApril 15, 2016
By Kelly Pedersen
Editor’s Note: The following information was provided during a “Financial Well-Being Workshop” held on April 11, 2016. This information is not financial advice, but rather general information about types of loans, key terms, and resources.
When it comes to attending graduate school, everyone is excited for graduation day, the culminating moment after years of hard work. You’re finally finished, but for many of us, something else is just beginning: student loan repayment. It’s important for students to understand what kinds of loans they have and their options for repayment. Below, find some information about student loans including key terms and links to help you decide what your best options are.
Loan Types for Graduate Students
- Subsidized: the government pays interest for a period of time.
- Unsubsidized: interest accumulates immediately.
- Perkins loans:Federally backed educational loans for graduate students. Awarded by schools only to students with low incomes. Graduate students who qualify can get up to $8,000 a year at an interest rate of only 5 percent.
- Subsidized Stafford loans: Federal loans for graduate students are awarded only to those who, according to the student’s FAFSA, need help paying tuition. Stafford loans are made directly by the federal government, all students can get all the money they qualify for, no matter what college they attend.
- Unsubsidized Stafford loans:These are awarded to almost every graduate student who applies, regardless of income. Stafford loans are made directly by the federal government, all students can get all the money they qualify for, no matter what college they attend.
- Grad PLUS:Graduate students who need more money after maxing out their Perkins and Stafford loans can borrow the full remainder of their educational costs (after other financial aid), including basic living expenses such as transportation, child care, etc., from the PLUS program.
Paying Your Student Loans
Know your grace period: A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on certain federal student loans (sually 6-9 months). Some federal student loans will accrue interest during the grace period, and if the interest is unpaid, it will be added to the principal balance of the loan when the repayment period begins.
If you aren’t able to pay your loans, you may need to apply for a deferment or forbearance, but what is the difference?
Deferment: A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).
Forbearance: A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.
Although you may select or be assigned a repayment plan when you first begin repaying your student loan, you can change repayment plans at any time—for free.
Contact your loan servicer if you would like to discuss repayment plan options or change your repayment plan. You can get information about all of the federal student loans you have received and find the loan servicer for your loans by logging in to My Federal Student Aid.
Teacher Loan Forgiveness
If you are a teacher and have been teaching full-time in a low-income elementary or secondary school or educational service agency for five consecutive years, you may be able to have as much as $17,500 of your subsidized or unsubsidized loans forgiven. Your PLUS loans cannot be included. For more information, go to Teacher Loan Forgiveness.
Public Service Loan Forgiveness
If you are employed in certain public service jobs and have made 120 payments on your Direct Loans, the remaining balance that you owe may be forgiven. Only payments made under certain repayment plans may be counted toward the required 120 payments. You must not be in default on the loans that are forgiven. For more information, go to Public Service Loan Forgiveness.
Perkins Loan Cancellation and Discharge
The following Federal Perkins Loan Program cancellations apply to individuals who perform certain types of public service or are employed in certain occupations.
For each complete year of service, a percentage of the loan may be canceled. The total percentage of the loan that can be canceled depends on the type of service performed. Depending on the type of loan you have, and when that loan was taken out, you may be eligible to cancel part of or your entire loan if you have served as one of the following:
- Volunteer in the Peace Corps or ACTION program (including VISTA)
- Member of the U.S. armed forces (serving in area of hostilities)
- Nurse or medical technician
- Law enforcement or corrections officer
- Head Start worker
- Child or family services worker
- Professional provider of early intervention services
There is no standard application form for Perkins Loan cancellations. Contact the school that you were attending when you received the loan. If you have a Federal Perkins Loan, learn about Loan Cancellation and Discharge here.
Financial well-being is an important aspect of your daily life. Make sure you are taking the steps you need to take care of your well-being.
Kelly Pedersen is a Graduate Assistant with University Life Arlington and masters candidate at the College of Visual and Performing Arts in the Arts Management program.