Here Are All Of Your Pressing Student Loan Questions, Answered
Almost everyone has them, and almost everyone struggles with them. Yep, we’re talking about student loans in all their infamy. We’re not gonna lie, either — many future students don’t fully understand what they’re getting into until they’ve already signed on the dotted line.
Student loan debt in the United States currently adds up to an insane $1.48 trillion, and more than 11 percent of people who currently have student loans are also in delinquency (AKA unable to pay their loans back). Basically, it’s a huge crippling problem that our country, and our students, are facing harder than the Alaskan winds Balto faced in his journey to Nome. (We love ya, Balto.)
So before you say yes to anything, sign anything or touch anything, know exactly what you’re getting into. From start to finish, here’s your guide to student loans and how not to drown in debt as a result of taking them out.
1. Pre-Loan Steps
We say, “FAFSA!” You say, “Huh?”
Guys, before you jump into the deep end, you gotta start in the kiddie pool. Before you even look at loan options, you should apply for aid through FAFSA (or Free Application for Federal Student Aid). It’s the largest free bank of scholarships and grants that you don’t have to pay back, and the amount you get is largely based on need and your (or your parents’) income level. You have to apply for FAFSA at the beginning of the calendar year before you head to school and again every year while you’re in school.
2. Types of Loans
Of course, there are a handful of loan types that you should familiarize yourself with before talking to anyone about financing college. We highly encourage you to study up on each type so that when you’re in a meeting with a college financial adviser and they say, “You’ll be fine!” you have enough knowledge to determine if you, in fact, will be fine. (Spoiler alert: You will not be fine if you don’t know what your loans mean.)
Federal Loans (AKA loans issued by the government)
- Stafford Loans: Loans that can be subsidized or unsubsidized (subsidized means you don’t accrue any interest on those loans while you’re still in school, and unsubsidized means that you start accruing interest on your actual first day of school). They can be used for different kinds of higher education.
- PLUS Loans (Parent Loans for Undergraduate Students): Loans offered to parents from the department of education to help fund their kids’ education. They’re limited to actual education expenses and factor in other financial aid the student is receiving prior to determining the loan amount.
- Perkins Loans: Available for undergrad or grad students, financed by school but guaranteed by government. Based on your financial need, the loans include $27,500 for undergrad and $60,000 for grad students.
You can seek private loans from places like banks, state agencies and credit unions. Essentially, you’re bypassing the government and going straight to a lender. With private loans, you’ll need to keep a close eye on the interest rate for each potential loan. Start comparing rates, especially to federal loans (which typically offer lower rates). You don’t want to get screwed over by accruing way more in interest rates than necessary.
3. Paying Off Those Loans
There are a number of ways you can pay your loans back, which is obviously your favorite part of your educational journey, right?! We know, it’s awful. But just know that there are many options you can choose from that work for your budget, income and circumstances. Keep in mind that not all these payment plans may work with your particular loan.
Original Terms: When you opt into a loan, you’ll discuss with a representative the pay schedule. After you graduate, this form of repayment is essentially just sticking to your word on what you want to pay and when. The original terms usually have you on track to pay off your loans within 10 to 20 years.
Income-Based Repayment: This type of repayment restructures your original terms to fit into your budget and income. You have to apply for this type of repayment every year since your income could change.
Deferment: A deferment plan helps push off your repayment plan and is typically only granted to current students, military personnel or those who are unemployed. Basically, you need an amazing reason to defer your payments.
Consolidation: Consolidation, well, consolidates your loans. The process takes multiple loans and combines them into a simple new loan, which can extend your repayment terms for up to 30 years but could also increase your interest rates.
Loan Forgiveness: Generally allows you to waive loan payments after a certain amount of time. Obviously, being granted forgiveness depends on your loan type, company you’re loaning the money from and your specific situation.
Public Service Loan Forgiveness: Allows you to waive loan payments after 10 years if you work for either a state or federal level of government.
529 Savings Plan: For parents only! This savings plan, facilitated by the IRA, allows parents to contribute to their kids’ college fund (or future in general).
4. What Happens When Sh*t Hits The Fan
There are a slew of things that you could face if you, for some reason, can’t pay your loans back. Deferment may be the first option, but after a certain period of time (270 days for federal loans — private loans go by their own schedules), you’ll default on your loans. That means that your loans will be turned over to a collections agency, your income will dwindle against your will (that collection agency will essentially reach into your checking or savings account and take out what it needs to, and sometimes you’re not even notified, even though you should be) and your credit will actually die. RIP, credit. It was nice knowing ya and being able to apply for apartments and cars and all the nice things!
Also, it’s important to note that some loans require a co-signer in case you either can’t pay your loans or, worse, you die. Yep, certain loans could be pushed onto a loved one if you croak, so make sure that before you sign on for a loan, you’re fully prepared to do what it takes to pay that loan. No one needs their moms cursing their ghosts.
We know, there’s so much info to take in. But trust us when we say that it’s worth the time investment. You, your wallet and your future will thank us.