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Understanding Student Loans and Repayment

Oct 20, 2024

Guide to Student Loans

Introduction

  • Student loans are a common reality for many students.
  • In 2019, 69% of students took out loans, averaging nearly $30,000 in debt.
  • Understanding loans before graduating is crucial.
  • Exit counseling sessions help educate students about their loans.
  • It's important to know your options to potentially reduce or avoid loans.

What Are Student Loans?

  • Part of a broader financial package (grants, scholarships, work-study).
  • Not required to pay back immediately; typically start 6 months post-graduation.

Types of Student Loans

Private Loans

  • Provided by non-government lenders (banks, credit unions, schools).
  • Variable or fixed interest rates; credit score can influence rates.
  • Usually unsubsidized, meaning interest accrues during school.
  • Set repayment terms (5-20 years); not eligible for loan forgiveness.
  • Interest rates can change; risk of rising rates.
  • Refinancing possible to potentially lower rates.

Federal Loans

  • Funded by the federal government.
  • Types: Direct Subsidized, Direct Unsubsidized, Direct PLUS Loans.
  • Subsidized: Government pays interest during school.
  • Unsubsidized: Interest accrues, payable later.
  • PLUS Loans: Taken by parents, repaid by parents.
  • Requires FAFSA form; fixed interest rate (4.53% for undergraduates).
  • No credit check required except for PLUS loans.
  • Offers repayment and postponement options.

Repayment Options

Private Loans

  • Start repaying while in school to save money.
  • After graduation, payments include principal and interest.
  • Payment amount influenced by interest rate, balance, repayment terms.
  • Options like forbearance and deferment depend on the lender.
  • Refinancing requires a good credit score.

Federal Loans

  • Flexible repayment plans, changeable without penalty.
  • Standard: Fixed amount for a set period.
  • Graduated: Starts low, increases over time.
  • Extended: Lengthened repayment period.
  • Income-based: Payments based on income.
  • Public Service Loan Forgiveness (PSLF) for qualifying employment.

Public Service Loan Forgiveness (PSLF)

  • Forgives loan balance after 120 qualifying payments.
  • Requires full-time work with a qualifying employer.
  • Low success rate; difficult to achieve forgiveness.

Conclusion

  • Taking out student loans is often necessary but should be done with caution.
  • Avoid viewing loans as "imaginary money."
  • Understand and choose the best options for your future.
  • Stay informed with resources like The Financial Diet on YouTube.

Refer to the next episode for more on managing finances as a student. Check The Financial Diet for more financial tips online.

Full transcript