Advantages of Federal College Loans
When scholarship programs and free financial aid is insufficient, Federal college loans, government student loans awarded to undergraduate and graduate students is readily available. What make it attractive are the low interest rate (lower than other forms of financing), no collateral or credit check, and no payment until one graduates. Although Federal college loans are less expensive than private loans, and no payment till one has graduated or leaves college midway, one has to understand that with interest it adds up and has to be paid eventually.
Students and parents availing Federal college loans should be aware that they can go in for either subsidized (no interest accrued until the student graduates, the best option) or unsubsidized loans (interest accrues while the student is still in school, obviously less desirable). The promissory note, a legal document stating the amount of money borrowed and the conditions under which the loan is to be repaid, is signed; repayment of a federal loan begins soon after the student has graduated from college.
Repayment
Repayments start immediately if for whatever reason the student plans on discontinuing studies.
Grace periods
Students and parents availing Federal college loans should be aware that they can go in for either subsidized (no interest accrued until the student graduates, the best option) or unsubsidized loans (interest accrues while the student is still in school, obviously less desirable). The promissory note, a legal document stating the amount of money borrowed and the conditions under which the loan is to be repaid, is signed; repayment of a federal loan begins soon after the student has graduated from college.
Repayment
Repayments start immediately if for whatever reason the student plans on discontinuing studies.
Grace periods
Usually a grace period of six to twelve months is given to students after graduation. A few federal lenders have a grace period of six months, but the interest grows with a subsidized loan, whereas no interest is charged with the subsidized one; a couple for only about two months with the interest rates starting immediately.
Loan payments are usually made every month or quarterly. The lenders contact the students after graduation or the students have to get in touch with the lenders, if they have not done so already. The student is termed as “delinquent” if the repayments are late or if the students do not make any payments.
A student can select a repayment plan extending between ten and twenty-five years, depending on his/her financial situation: (1) Standard Repayment—fixed amount paid each month for ten years, with a low interest rate. (2) Extended Repayment—fixed annual payment for twenty-five years, paying more interest for the extended period. (3) Graduated Repayment—payments start low with an increase every two years, according to the increase in salary, for ten years. (4) Income-Based Repayment—monthly payment based on size of family and income from ten to twenty-five years; the remaining balance is cancelled after working in public service and the same goes after working for twenty-five years, if the terms are met. (5) Income Contingent Repayment—monthly payments calculated based on income, family size, and direct loans over a period of twenty-five years. After twenty-five years the remaining balance, if any, will be cancelled but tax to be paid on the cancelled balance. (6) Income-Sensitive Repayment—calculated on annual income for a period of ten years. If income increases or decreases, so does the payment.
Students should always use the Federal college loans option first, as it offers more attractive terms. But, again, a note of caution—be careful! Remember, you have to pay back the loan taken, eventually.
Loan payments are usually made every month or quarterly. The lenders contact the students after graduation or the students have to get in touch with the lenders, if they have not done so already. The student is termed as “delinquent” if the repayments are late or if the students do not make any payments.
A student can select a repayment plan extending between ten and twenty-five years, depending on his/her financial situation: (1) Standard Repayment—fixed amount paid each month for ten years, with a low interest rate. (2) Extended Repayment—fixed annual payment for twenty-five years, paying more interest for the extended period. (3) Graduated Repayment—payments start low with an increase every two years, according to the increase in salary, for ten years. (4) Income-Based Repayment—monthly payment based on size of family and income from ten to twenty-five years; the remaining balance is cancelled after working in public service and the same goes after working for twenty-five years, if the terms are met. (5) Income Contingent Repayment—monthly payments calculated based on income, family size, and direct loans over a period of twenty-five years. After twenty-five years the remaining balance, if any, will be cancelled but tax to be paid on the cancelled balance. (6) Income-Sensitive Repayment—calculated on annual income for a period of ten years. If income increases or decreases, so does the payment.
Students should always use the Federal college loans option first, as it offers more attractive terms. But, again, a note of caution—be careful! Remember, you have to pay back the loan taken, eventually.
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