Overcoming Student Loan Complexities
As is customary with most government programs, the government prides itself in complicating its ever-changing student loan rules, limitations, stipulations, and exceptions to the point that only a genius legal attorney -- with a degree in finance and a photographic memory -- can know precisely what steps to take after reading the exhaustive documentation.
Unfortunately that usually leaves the rest of us (you know, the persons the programs were intended to help) lost in a maze of legal speak and unfamiliar financial terms.
And when you finally get over the confusion born migraines, and you gain enough courage to submit a student loan form, the feeling you get is probably comparable to the feeling you'd get when ...
So while it's impractical to try to summarize the maze of student loan documentation on a single web page, what I can do is:
- Recommend you visit the Financial Aid office and ask for their expert assistance.
- Invite you to visit studentaid.ed.gov and spend several days memorizing the material.
- Talk you into paying for your education as you go, instead of borrowing from an uncertain future (Will you get a job? Will your field of study still exist? Will interest rates skyrocket?)
- Give you just enough information to help you use the calculator to see how much you'll be paying each month for all of your combined student loans.
Assuming you want just the basics you will need to use the student loan repayment calculator, I'll do my best to highlight the key points.
Subsidized Vs Unsubsidized
Before listing the loan types it's important to understand the basic differences between Subsidized and Unsubsidized student loans.
| Subsidized | Unsubsidized |
|---|---|
| Available to undergraduates based on financial need. | Available to undergraduates and graduates, no financial need requirement. |
| The U.S. Department of Education (A.K.A. taxpayers) pays your interest during school and for six months after leaving school. | You are responsible for paying the interest both during school and after leaving school. You can either pay the interest charges as they are charged (highly recommended), or you can let them build up and have them added to the amount you owe once you start making payments. |
| Your school determines how much you can borrow. | |
Types of Student Loans
Based on my research and my experience with helping my own children, there are basically 4 types of student loans:
- Federal Direct Subsidized
- Federal Direct Unsubsidized
- Federal Parent PLUS
- Private
Here are the basics for each of the four loan types:
1) Federal Direct Subsidized
- Available to undergraduates based on need (determined by FAFSA).
- Government pays the interest on the loan while you are in school.
- Payments don't start until 6 months after leaving school.
2) Federal Direct Unsubsidized
- Available to undergraduates and graduate students.
- You are responsible for the interest on the loan.
- Interest can be paid as it is charged, or can be accumulated and added to the loan balance (otherwise known as interest capitalization).
- Payments aren't required until 6 months after leaving school.
3) Federal Parent PLUS
- Available to parents of undergraduates and graduate students.
- Parents begin making payments shortly after the loan is granted.
- Parents must make the minimum payments, but can set a higher payment amount.
4) Private
- Varies by lender.
Income Driven Repayment Plans
While the Student Loan Calculator on this page isn't equipped to handle them, there are 4 types of federal repayment plans you might qualify for if your payments are high relative to your income:
- Revised Pay As You Earn (REPAYE).
- Pay As You Earn (PAYE).
- Income Based (IBR).
- Income Contingent (ICR).
For more information on these plans, visit https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven.