How Much Student Loans Do I Have – Learn how the different types of student loans work, as well as tips on how much you can and should borrow.
Getting a college degree is expensive. Tuition, fees, room and board, and required course materials can add up to a large, daunting bill.
How Much Student Loans Do I Have
If scholarships, grants, and savings aren’t cutting it, you may need to consider taking out a student loan to pay for college.
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Student loans can help cover the cost of your education, but debt can also become a huge financial burden. There are 2 basic types of loans you can use: federal student loans and private student loans.
A student loan is money you borrow to pay for college and eventually have to pay it back (in those cases, but more on that later).
When you take out a student loan, you sign and agree to an agreement that details the terms of the loan.
This includes the interest rate, the period in which the interest starts to accumulate, the minimum monthly payment required and the total time you have to repay the loan in full. Here’s what it all means:
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You should look at these terms and conditions when comparing student loans and deciding which one to take out.
Student loans can be taken out by the student or his parents. In 2020, 34% of college students took out a student loan and 20% of students’ parents took out a loan to pay for their college expenses.
In the same year, the average amount borrowed by students was $11,836 per year, and parents borrowed an average of $12,535 per year.
Interest is the cost that the lender charges you for borrowing funds. A portion of each of your monthly payments covers the applicable interest for that period, and the other portion pays the original loan balance.
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Let’s say you have a $5,000 loan with an annual interest rate of 5%. Although the interest is expressed as an annual percentage, it actually accumulates every day. Over a 30-day period, this loan would accrue $20.55 in interest: [(0.05/365) x 30 days x $5,000 = $20.55].
In this example, if you were paying $100 a month on your loan, you would only pay $79.45, because $20.55 of interest would have been paid first.
With student loans, you have options, so don’t take out a loan until you’ve done your research. The 2 main student loan lenders are the federal government (federal student loans) and private financial institutions (private student loans).
In 2020, 30% of students used federal loans and 13% of students used private loans. The type of loan you choose is very important because it affects the cost of the loan and repayment options.
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When you take out a federal loan, you’re borrowing from the US Department of Education’s William D. Ford Federal Direct Loan program (what a mouthful!). This is why we usually refer to a federal student loan as a direct loan or federal loan for short.
To be considered for a federal student loan, you will need to submit a Free Form for Federal Student Aid (FAFSA®), also known as the FAFSA. To be accepted for a federal student loan, you’ll need to sign a master promissory note (a legal promise to repay the loan in full plus applicable interest) and complete loan counseling.
Because PLUS loans are also available to parents, a financial advisor or lender often uses the term graduate PLUS loan to indicate that the loan is intended for a graduate or professional student.
Unlike other federal loans, your credit history will be used to decide whether or not you can get a loan.
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Usually, the interest rate on a federal loan is lower than on a private loan, but private loans are worth considering if you don’t qualify for a federal loan or can’t get a federal loan large enough to cover all of your education costs.
The application process for private student loans varies, so you’ll need to get details from the lender offering the private loan.
Federal student loans and private student loans are not the same. The terms and conditions differ — especially on whether it’s subsidized or not, the start of the repayment period and repayment options.
The Parent PLUS Loan is the only federal student loan that will require a cosigner (a person who agrees to pay back the loan if you can’t). No other federal loan requires a cosigner.
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Alternatively, t private loans require a co-signer. The exception is when you have a very good credit history.
The interest rate on federal student loans is fixed – it’s set when you take out the loan and doesn’t change for the rest of the time you have the loan. Private loans can have fixed or variable interest rates. If your loan is variable, the interest rate is usually tied to the market rate and may rise or fall over the life of the loan. If interest rates rise, you’ll see much higher student loan debt payments and could end up paying a lot more than you expected.
As we mentioned above, the interest rate on a federal loan is usually lower than that of a private student loan.
Federal student loans have certain origination and other fees. For loans issued before October 1, 2023, the loan fee is 1.057% of the balance.
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Private student loan lenders may charge different fees, depending on the lender you choose. You’ll want to shop around a bit to find the lender that offers the cheapest loan.
A private loan usually requires you to start repaying your loan right away. On the other hand, you don’t have to pay off your federal loan until you graduate. There is usually a 6-month grace period after you leave school before federal loan payments begin.
One exception: If you drop out or choose to enroll less than half-time, you’ll have to start making federal loan payments before you graduate.
When a federal loan is a subsidized loan, that means the lender covers your interest payments as long as you meet their requirements.
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The usual requirements are that you use the loan to cover the costs of your undergraduate studies, that you attend school at least half-time, and that you can demonstrate financial need.
Alternatively, private loans are always unsubsidized loans that charge you interest right away and require you to start making payments while you’re still in school.
The Department of Education (DOE) offers consolidation loans, which are loans that allow you to combine several federal loans into one with a fixed interest rate at no cost.
Although some private lenders may also offer a consolidation loan, they often charge a fee. Loan consolidation is useful when you are repaying several student loans from different lenders. Instead of processing many payments with different deadlines, you’ll deal with one payment.
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The standard federal student loan repayment term is 10 years. Consolidation loans can have terms of up to 30 years.
On the other hand, private student loans have more varied repayment terms. Longer terms lead to lower student loan payments, but you’ll pay more over the life of the loan.
For example, a first-year college student who is a dependent can borrow up to $5,500 in federal loans. However, that same student may not borrow more than $3,500 of those $5,500 in subsidized loans.
In the fourth year, all things being equal, they can borrow an additional $7,500 in federal loans ($5,500 or less in subsidized loans), until they exceed the $31,000 combined loan limit from all their student loans ($23,000 for the subsidized loan limit loan).
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It’s also important to note that you can’t get more than the cost of attending your college minus any other aid you received with federal student loans. If your school’s cost of attendance is $20,000 and you received a $15,000 scholarship, you can only receive up to $5,000 in federal loans. If you get a lot of other help, it could affect your borrowing limits.
Although you could borrow as a dependent undergraduate student up to $5,500 in federal loans in your first year, that doesn’t mean you should.
After your FAFSA application is processed, your school will present a financial aid offer, which will break down your financial aid and available federal student loans.
Take as much time as you need to review your funds and remember that you don’t have to take the entire amount offered. You can always take less.
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In case you absolutely have to go into debt to afford going to college, a subsidized loan is always better than an unsubsidized loan. And much better than alternative forms of debt, such as credit cards and personal loans.
For private student loans, repayment generally begins immediately. You will need to start making monthly payments while you are in school and according to your repayment schedule. Contact a private lender to see if they offer any repayment options.
For federal student loans, repayment usually begins after graduation. There are some exceptions when you stop studying or change your enrollment status to less than half-time.
There is no repayment plan with federal loans. DOE offers many paybacks
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