Federal Student Loan Payback

Federal Student Loan Payback

We’ve all heard of both federal and private student loans, but what is the difference, and how does the difference affect your ability to pay off the loans quickly? First, we’ll look at federal student loans.

Federal Student loans are a great starting point to fund a college career – with interest rates relatively low (under 10%, with some as low as 5%), they are a comparatively inexpensive source of money. There are 5 different types of federal student loans: Federal Perkins Loans, FFEL Stafford Loans, Direct Stafford Loans, FFEL PLUS Loans, and Direct PLUS loans. As a student or graduate, you should probably only worry about Perkins and Stafford loans, as the PLUS loans are granted to parents of students.

Federal student loans come in 2 flavors: subsidized and unsubsidized. Subsidized student loans are only available in the Stafford Loans. If you have a subsidized Stafford loan, you’re in luck – this means that the government has been paying (and will continue paying, if you’re still in school) the interest on your loan. You wont be responsible for the interest payments on your student loans until repayment begins, which usually happens about 6 months after graduation. If you find that your loans aren’t subsidized, don’t fret – while you are certainly going to be paying back more than you borrowed, you can alleviate the situation by paying interest payments along the way. The interest is compounding, so each month’s interest is added to the principle amount used to calculate the next months interest charge – In simpler terms, every month you pay more interest than you did the previous month. Paying off interest while you are still in college is a great way to minimize the impact of this effect.

Who am I paying back?

With Federal student loans, you’ll either be paying back the U.S. Dept of Education, a private lender (bank, credit union, etc.), or your school, depending on the type of loan.

When are payments due, and how long is the repayment period?

I’ll get into this more with an upcoming series on specific federal student loans, but for now, here are some generalizations: the Perkins loan allows only up to 10 years to pay, and the Stafford loans permit repayment times of 10 – 25 years. Most loans become due within 6 months of graduation, but special circumstances can apply.

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