Most borrowers only know the basics of student loans. But you could actually improve your financial health by learning more about how your student loans work – and what options may be available to your loan payments. If you have questions about your student debt, here’s your guide to some of the ‘must knows’ about private and federal student loan repayment plans.
Federal vs. private student debt
You probably already know if you have federal or private loans. Perhaps you even a combination of both? If you don’t, take some time to find out what loans you have and how much you collectively owe. Here’s why. Federal student loans are backed by the government and often come with lower fixed interest rates and more borrower protections. Private loans, on the other hand, are offered through banks or credit unions and tend to have higher variable interest rates. In addition, there are more regulations when it comes to qualifying for private student loans. Another major difference between the two is that you can consolidate federal student loans through the DOE – but not private ones.
Subsidized vs. unsubsidized loans
If you have federal student loans you may have a combination of subsidized and unsubsidized loans. Subsidized loans are only offered to undergraduate students and are based on your financial needs among other factors. Additionally, subsidized loans don’t accrue interest while you’re in school or during the six month grace period. In contrast, unsubsidized loans accrue interest as soon as you borrow, and are not based on financial needs. Both loans are determined by your school and can’t exceed the maximum borrowing amount determined by your chosen education path.
If you’re like most new graduates, your servicer either automatically placed into a plan – or you selected a plan without putting much thought into how it might affect your future. When it comes to federal student loans, the Department of Education offers many different repayment options – while private loan options depend on the lender. For example, one option offered by the DOE is the standard repayment plan. The standard plan has a fixed monthly payment for 10 years – or until your debt is paid off. Another DOE option is an income-driven plan or IDR. Which takes your personal income, family size, and a few other personal factors into consideration when calculating your monthly payments. Therefore, if your salary is on the lower end – or if you’re currently unemployed, you could qualify for major monthly payment reductions.
Need help with your student loans?
Student loan debt can be overwhelming! And if you didn’t know already, student loan payments even appear in your credit history. Which is why learning more about your options could help you make more educated decisions when it comes to your finances. Keep in mind that the options above only scratch the surface of the potential possibilities regarding student loan debt. In addition, there may be other factors to consider before making a decision that is right for you. If you have questions regarding your federal student debt, you can reach out to the DOE – or check out Docupop. Docupop is a trustworthy doc-prep company that can help you find out which repayment options you may qualify for and can assist you with the filing process.
Legal Disclaimer: This site is for informational purposes only, is general in nature, and is not intended to and should not be relied upon to provide financial, legal, or tax advice