Let’s start with the basics. Here are 5 facts that every future college kid should know about student loans.
1) There Are Two Types Of Government Loans
The two types of government loans are subsidized and unsubsidized.
With subsidized loans, the government will pay your loan interest while you are in school. These loans are reserved for those students who qualify for financial aid. After college, there is also a 6 month grace period where the government will continue to pay interest. After that time, they will be interest bearing just like any other loan.
Unsubsidized loans will start accruing interest the moment they are issued. It is often advised that students make interest only payments in college to keep the interest under control. Otherwise, you will be paying interest on the interest (compound interest).
2) There Is A Grace Period
After college, you will not have to start paying your federal student loans right away. There is a grace period of 6 months. This grace period gives college graduates time to find a job before loan payments begin.
If your loan is unsubsidized, keep in mind that interest will continue to accrue on the loan. If you have been making interest only payments during college, you will likely wish to continue doing so during your grace period.
3) You Can Have Your Loans Forgiven
It is possible to have your loans forgiven if you meet one of several different criteria.
If you work in public service, as a teacher in a low income area or become disabled, you may be able to have your loans forgiven. In addition, if you are on an income driven payment plan, you may be able to have your remaining loan balance discharged after making payments for 25 years.
Check the official US government student loan page for details and for other cases where you may be able to qualify for loan forgiveness.
4) Private Loans Can Bridge The Gap
With the rising cost of a college education, government loans often do not cover all of your expenses. In these cases, you can bridge that gap with the help of private loans. Do use caution when applying for private loans because the interest rates are often higher than government subsidized loan. In addition, you should keep your total debt under control so they do not become an anchor around your neck after college.
If you need a private loan, you can contact your schools financial aid department. They will help you contact lenders that they work with.
5) You Will Have To Pay Your Loans Back
Some people believe that they can simply file for bankruptcy and have your loans discharged. This is not the case under most circumstances.
In order to have student loans discharged under bankruptcy, your lawyer would have to prove that paying the student loans would cause an undue hardship. This can be difficult to do and it would cost the filer thousands of dollars in extra legal fees over the standard 1500 dollars to 2000 dollars that a bankruptcy already costs. Even then, less than half of these student loan requests are granted.
Theoretically, it can be done but it is very unlikely.