Terms Of Student Loans

Repayment Period

Your student loan repayment period begins after graduation or drop out of school. Your monthly payment may change depending on your income level. A higher-income borrower may have a longer repayment term than a lower-income borrower. There are no restrictions on how long you have to pay back your loans. However, if you miss payments, interest will begin accruing immediately and continue to build until your entire debt is repaid.

Interest Rate

The amount of interest you pay on your federal loans will depend on your credit history, the cost of borrowing money, and the length of time you take to fully repay your loan. You’ll pay interest at the same rate throughout the duration of your loan. But don’t worry – you won’t end up paying much in interest.

Loan Origination Fee & Application Fee

You’ll pay a processing fee when you apply for your federal student loan. The origination fee ranges from $0-$100 and varies by lender. Be sure to find all the information about the fees before you apply for financing. Fees could increase once your loan enters repayment mode.

Terms Of Student Loans

Federal Direct Loan Program (Direct Loan)

A direct loan is a federal government provided loan program that does not require repayment while the student is in school. A typical student loans program requires payments throughout the duration of the loan, as long as the student is enrolled at least half time. These programs are subsidized and guaranteed by the U.S. Department of Education.

Perkins Loan

The Perkins Loan was created for students attending non-profit schools. The Perkin’s Loan offers lower interest rates than other education loans. There is no limit on how much money the government can lend to students under the Perkins Loan program. However, students generally borrow between $500-$1000 per year.

Stafford Guaranteed Loan

For students who have exceptional financial need, they may qualify for a Stafford Guaranteed Loan. Students applying for a Stafford Loan must also meet certain academic criteria.

William D. Ford Direct Loan

This is commonly called a Direct PLUS Loan. This loan program provides additional funds for those students who demonstrate high income levels. While the interest rate for these loans is greater than standard student loans, borrowers have the option of deferring payment until after graduation.

GradPLUS Loan

Graduation Plus loans are designed for students who plan on pursuing post graduate studies or working in specific fields. GraduatePlus Loan providers offer lower interest rates compared to other student loans.

Parental Loan For Undergraduate Students (PLIUS)

Parents can help their children pay for college by taking out a PLIUS loan. This type of student loan is offered directly from the federal government, instead of being issued by a bank or private lender. Parents receive fixed interest rates and the amount borrowed cannot exceed the cost of attendance minus other forms of financial aid.

Parent PLUS Loan

Students may use their parents’ credit history to take out a parent PLUS loan. Borrowers must first demonstrate to the lending institution that they do not already have sufficient family assets to cover their education expenses. After meeting the minimum requirements, the borrower receives a fixed rate of interest and the principal balance cannot exceed the cost of tuition and fees.

Terms Of Student Loans

Repayment plans

A repayment plan is a schedule of payments designed to help pay off student loans faster. There are two types of repayment plans available to borrowers: subsidized and unsubsidized. Subsidized plans have lower interest rates than unsubsidized plans. You may qualify for either type of plan based on several factors including income, loan amount, and type of school attended.

Interest-only payments

If you’re paying back your student loan over time, you might only need to make regular monthly payments. But if you have an interest-only term, you’ll make interest-only payments throughout the entire duration of the loan, not just while you’re in school.

Loan forgiveness programs

Some student loan companies offer loan forgiveness programs if you meet certain criteria and work for a specific number of years after graduation. These programs may apply to federal direct loans, private alternative loans, and FFELP (Federal Family Education Loan Program) loans.

Income-based repayment plans

Instead of making fixed monthly payments, some students choose to make smaller payments based on their income. To qualify, the payment amount cannot exceed 25% of discretionary income. This plan reduces the total amount owed over the lifetime of the loan, which can save borrowers money.

Payday advances

These short-term unsecured cash advances can potentially put borrowers deeper in debt. Borrowers should always seek out credit counseling before using these services. In addition to higher interest rates, payday lenders charge steep fees and often require additional documents that increase the risk of identity theft.

Public service loan forgiveness

Public service organizations like AmeriCorps, Peace Corps, and Teach for America offer public service loan forgiveness under the Teacher Protection Act. Eligible borrowers who enter into a teaching program before July 1, 2007, will receive loan forgiveness upon completion of their tenure.

Private alternative loans

Alternative loan programs provide flexible repayment options for college graduates and others struggling to repay high-interest federal loans. Private alternative loans are available through nonprofit organizations like SNAPS (Student Non-Profit Assistance Center).

Terms Of Student Loans

Federal Direct Loan Program (FDLP): A student loan program created by Congress for students who would otherwise not have access to the education they wanted due to their financial situation. As part of this program, the federal government steps in to provide loans at low interest rates directly to colleges and universities. These loans are then distributed to students, along with the federal government guaranteeing them back if the money is never repaid.

Private Alternative Loan Programs (PALPs): Private alternative loan programs operate independently of the federal direct loan program, making them less regulated and giving lenders more flexibility in how they conduct business. Since these private alternative loan programs do not receive the same level of protection from the federal government, borrowers may find themselves in a worse position than someone who received a federal direct loan.

Direct Consolidation Loans: Under certain circumstances, a lender may offer to consolidate several different federal and private alternative loans into a single loan to lower monthly payments. However, consolidation loans carry additional fees and charges for borrowing.

Federal Family Education Loan Program (FFELP): Created in 1980 under the Stafford Act, the FFELP was designed to help students pay for college costs. The FFELP offers two types of loans; subsidized and unsubsidized. Subsidized loans are given out to students who cannot afford to borrow any amount of money without receiving some sort of assistance. Students who are given subsidized loans are only responsible for paying interest while in school. Once graduated, however, the borrower may need to begin repaying the principal and interest of the loan. Unsubsidized loans are given to those who want to borrow more and can afford to pay back the entire amount owed.

Perkins Loans: Created in 1994 under the Higher Education Amendments of 1992, the Perkins loan program is also known as the Direct PLUS Loan program. Similar to the FFELP, this program offers both subsidized and unsubsidied loans. Like the FFELP, the Perkins loan does not require repayment once the individual graduates, though they must start repaying their loan in installments.

William D. Ford Direct Loan Program (WDFDLP): This loan program is created under the Higher Educational Opportunity Act of 2008. In addition to offering federal loan funds to cover the cost of higher education, the WDFDLP provides special funding to minority-serving institutions and community colleges.

Subsidized and Unsubsidized Graduate Student Loans: These loans were established in 2007 under the American Recovery and Reinvestment Act as a way to create funds for graduate student financial aid. The Subsidized Graduate Student Loans go towards students who have been accepted to a Master’s degree program to finance tuition and living expenses. Unlike the FFELP and WDFDLP, the SGSL loans require repayment after graduation. The unsubsidized Graduate Student Loan is similar to the FFELP and Perkins loans, although the unsubsidized loan only goes towards undergraduate degrees.

Pell Grants: Also known as the Federal Pell Grant Program, this loan program is funded by the U.S. Department of Education and is awarded to students based on academic merit. Pell grants are awarded regardless of a family’s income level, though families with incomes below $30,000 per year cannot apply for the grant. The maximum award for the 2016–2017 school year was $5,920 for undergraduate students and $11,820 for graduate students.

Work Study Program (WSP): Created in 1965 under  IV of the Higher Education Act, this loan program allows students working full time to receive compensation for their work on campus. The WSP is administered through each university individually, and students must fill out a Free Application for Federal Student Aid (FAFSA) before receiving the funds. Each university has its own guidelines regarding eligibility and limits to the number of hours that a student can be paid.

Veterans Affairs (VA) Loans: Provided by the Department of Veteran Affairs, VA loans are federally insured and offer eligible veterans low interest rates and flexible payment options when compared to non-government student loans. Eligibility requirements vary depending on whether you are serving active duty or have already retired.

Terms Of Student Loans

Balance Sheet

The term balance sheet refers to the financial statements of a business. A balance sheet lists assets (such as land, buildings, inventory, etc.) owned by a company along with their value. These assets are then subtracted from liabilities (money owed to others) and equity (the owners’ ownership share). The result is a statement showing total assets, liabilities, and owner’s equity.

Debt vs Equity

A debt-equity ratio compares how much debt a company owes compared to its shareholders’ ownership stake. Equity may take the form of stock shares, cash, bonds, mutual fund investments, or real estate holdings. An increase in the debt-equity ratio means the company has borrowed money and decreased its ownership stake at the same time. Conversely, if the ratio increases, this shows that the company owns less than what it owes; it may have borrowed more money than it could pay back. Companies with higher debt-equity ratios should find ways to cut down on borrowing, either through decreasing expenses, increasing profitability, or both.

Interest Rate & Loan Amount

An interest rate is the amount of money charged per year on a loan. To calculate how much a company would owe in interest payments over a certain period, multiply the annual percentage interest rate by the length of the loan. If the interest rate is 8% annually, the company would owe $8 x 12 months $96. In addition, the company would also repay the principal, meaning that it would pay off the entire loan amount, $100, before the end of the loan term.

LTV (Loan To Value Ratio)

This is the percentage of the home’s market value relative to the value of the mortgage taken out to purchase it. The lower the LTV, the more affordable the house seems. The calculation looks something like this: $200,000 / $150,000 1.33 33%.

APR (Annual Percentage Rate)

APR stands for Annual Percentage Rate, and is expressed as a number between 0% and 100%, depending on terms and conditions. APR indicates the cost of credit, including fees, in relation to the size of the loan. The higher the APR, the greater the cost of borrowing, and vice versa. Most banks charge a variety of rates based on customer credit history, type of loan, and the borrower’s location.

Amortization

Amortization is the process by which monthly payments cover the outstanding amount of a loan. In order to amortize a loan, each payment should not only go towards paying back the original loan, but also add additional money to help pay off any remaining balances over the course of the loan term. Thus, at the beginning of the loan, the monthly payment covers only the principal portion of the loan. As the loan progresses, however, the payment includes some extra money to make sure that the remaining balance is paid off at the end of the loan.

Prepayment Penalty

If a homeowner decides to pay off her home earlier than planned, she runs the risk of incurring penalties that could put her further in debt. Common prepayment penalties include:

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