You may be aware that there are differences between federal and private student loans, but did you know that there are different types of federal student loans?
Borrowing money using any type of loan
Before borrowing money using any type of loan, it is important to understand the terms of the loan, but differences can be crucial when it comes to student loans.
Different types of conditions and different interest rates can affect the amount of money your student will need to repay upon graduation, as well as the types of repayment plans they may qualify for.
The first step in qualifying for any type of financial aid is to complete the GFIC or a Good Finance Investment Corporation. The GFIC for the 2018-19 school year will be online starting October 1, 2017.
Upon completion, you will get a general idea of your expected family contribution or EFC. Your GFIC information is then sent to your chosen colleges, each providing an individual financial aid award package.
Students first turn to scholarships and grants that do not have to be repaid, and then student loans that have to be repaid. A grant letter will indicate your eligibility for certain types of federal student loans. You may see a formulation like “Direct Subsidized Loan” or “Non-repayable Loan”.
Direct subsidized loans are loans
Direct subsidized loans are loans to undergraduate students who show a financial need to cover the cost of higher education in college or in their careers.
Because they are designed to help students with financial need, subsidized loans have slightly better conditions. Non-repayable non-repayable loans are borrowings from qualified undergraduate, graduate, and professional students, but in this case, the student does not have to prove the financial need to be eligible for the loan.
GFIC or parent loans are also non-repayable. Here are some points you will want to consider when borrowing money using federal student loans:
- Interest: The U.S. Department of Education pays interest on a direct subsidized loan while a student is at school at least halfway through the first six months after leaving school and during the deferral period. Students are responsible for paying interest on direct unsubsidized credit during all periods. They may choose not to pay interest while they are at school, during the grace period, or during a deferral, but the interest will be credited and added to the principal amount of the loan. Whether the interest is subsidized or non-refundable is a significant difference in the amount of money owed after graduation, even when borrowing the same amount of money. Interest rates for subsidized and non-subsidized student loans were first paid to students on or after 7/1/16, and before 7/1/17 were 3.76%.
- The amount available: For most dependent students, the total credit limit is USD 31,000, of which no more than USD 23,000 may be in subsidized loans. For independent undergraduate students and those whose parents do not qualify for GFIC loans, the total credit limit is USD 57,500, of which no more than USD 23,000 may be in subsidized loans. Loan fees for subsidized and unpublished loans borrowed on or after October 1, 2017, and 1,061% are 1.069%.
- Interest payback: A popular technique for students and parents who want to eliminate the “sticker shock” of uncultured credit is to try to pay off the interest because it was added during their college years. This will help students become habits of paying student loans. Students can begin to see how interest accrues, how their payments are applied, and what a good plan for them was after graduation.
- Principal Repayment: Both subsidized and non-repayable federal student loans are eligible for a variety of repayment plans, including standard, graduate, extended, and income-based.
Accept all student loans offered
Your school will tell you how to accept all student loans offered. You do not have to borrow the entire amount available, so borrow only what you need.
Families need to hold conceptualized budget talks, learn everything they can about student loans before lending, and understand how student loan repayments will affect their future financial lives.
Use a student loan repayment calculator to estimate post-graduation payments.