Understanding what’s what in student loan debt before signing your agreement

We cannot help you pay for your studies, but we can help you understand each word of the contract that you conclude to do it. Here is a glossary of the terms that you should be clear about before signing.

College tuition is so expensive that the vast majority of Americans have to apply for a student loan in order to pay it off. What you agree to now could determine many years of your financial future. So, read carefully to understand what you’re signing.

Terms for getting started

•  FAFSA: The Free Application for Federal Student Aid is an online form administered by Federal Student Aid, an office of the U.S. Department of Education. College students who wish to receive federal student aid must complete the FAFSA every year.

• Federal Direct Loan Program: This is the first loan you should try for. It’s almost impossible to not qualify, but depending on your eligibility, there are two primary types of Direct Loans: Subsidized ( for undergraduates, tied to financial need), and Unsubsidized (available to all eligible students). The U.S. Department of Education is your lender.

• Private Student Loans: These are made by private lenders such as banks, credit unions, and fintech companies. Rates and terms will vary by lender, so not everyone qualifies for them. Private student loans are not eligible for federal loan repayment and loan forgiveness programs. 

Terms for after graduation

• Student Loan Servicer: If you take out federal student loans, the U.S. government is your lender, but once the loans are disbursed, you will be assigned a loan servicer. With private student loans, your original lender will usually also be the one you make payments to after graduation. 

• Student Loan Consolidation: If you have more than one federal student loan, you can consolidate them into a Direct Consolidation Loan. Private student loans can also be consolidated into one private student loan. 

Terms to understand repayment plans

With private loans, repayment terms are established at the beginning, when your application is approved.


Federal Student Loans have several repayment plans and you can change the plan you’re on at any time for free. There is also no prepayment penalty for paying off your student loan early. 

• Standard Repayment: A fixed monthly payment for a 10-year repayment term or a 10-30 year term for a Consolidation Loan. 

• Graduated Repayment: Identical 10-30 year terms, but payments start out lower and then increase over time, hopefully in accordance with an increase in the borrower’s income. 

• Income-Sensitive Repayment: Monthly payments are based on annual income but also keep pace to a 15-year term. 

• Extended Repayment: If you borrow more than $30,000 in federal student debt, your payments will be fixed or graduated within a 25-year term.

Other terms you need to understand

Outstanding balance: An average outstanding balance is the unpaid, interest-bearing balance over a period of time. 


Debt forgiveness: Debt forgiveness occurs when a lender forgives all or some of your outstanding balance on a loan. In regard to student loans, these programs only apply to federal student loan debt and involve you making your loan payments for a certain repayment period before the debt is forgiven.
 

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