Need-based loans are provided to students who are unable to pay the amount needed to cover all costs to attend college . Need is determined by the Free Application for Federal Student Aid ( FAFSA ), which can be completed online at no cost . Need-based loans are available as a Federal Perkins Loan , awarded to students with the highest need , or a Federal Direct Subsidized Loan , provided interest-free while in college .
If the FAFSA determines that a student is ineligible for a need-based loan , non-need-based loan options are available as a Federal Direct Unsubsidized Loan or Federal Direct PLUS Loan . Unsubsidized loans allow the borrower to add interest to the total amount borrowed after graduation , but beware : this leads to owing even more money when it comes time to start paying off the loan . Direct PLUS Loans provide graduate students or parents the opportunity to borrow the total cost of attending college , minus other financial aid received .
Unlike the loans mentioned above that are sponsored by the federal government , state and private loans are sponsored by banks , colleges , foundations , and state agencies . The U . S . Department of Education manages all college loans available by state and requires students to be in-state residents or enrolled in a college in that state . Private loans are an option for borrowers but come with terms and conditions that may not be as favorable as federal loans . Private loans also require a cosigner who is responsible for repaying the money if the student fails to do so .
Managing Debt After College
Student loan debt continues to increase and has become a burden on both graduates and the U . S . economy . There are a variety of loan repayment options for students . Here are some tips on how to approach repayment : n Figure out what you ’ ll owe and start to save early . Creating a budget early will allow you to build a solid foundation for repayment after graduation . Setting aside money each month
toward future savings for repayment will set you up for success come graduation day . n Understand your repayment options . There are several different options available to start paying off student loans based on the type of loan you received . Common federal loan plans include standard , graduated , extended , or income based .
• Standard plans specify payments in fixed amounts to ensure that loans are paid off in 10-30 years ( these payments are often very high for new graduates ).
• Graduated plans have payments that start out lower and increase every two years , also ensuring that loans are paid off within 10-30 years ( based on loan ). This plan assumes you ’ ll continue to make more money as you continue your career path , so additional money is allotted to repayment as you go .
• Extended plan payments may be made in a fixed amount or a graduated amount and ensure payment in full within 25 years .
• Income-based plans take 10-15 percent of your discretionary income and are recalculated each year . Once you are married , your spouse ’ s income will also be considered if filing jointly on tax returns . Any outstanding balance on the loan will be forgiven after 20-25 years . n Consolidate for ease . If you have multiple federal loans , consolidating them into one can make repayment easier . But there may be fees or other conditions associated with consolidating , so be sure to do your research . n Is forgiveness an option ? Some programs offer loan forgiveness if you meet certain criteria or work in a particular field . People in government , nonprofit , and other public-service jobs may have the remainder of their loans forgiven after 10 years of service . Additional forgiveness options are available for nurses , teachers , AmeriCorps and Peace Corps volunteers , and some state and private programs . n
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