If you’ve recently graduated or left college, you may be (not-so-eagerly) anticipating the day that you start paying back your student loans. The grace period after graduating or leaving school is six months, which gives you some time to learn as much as you can about the types of loans that you have — and how you should go about repaying them.
The first step that you should take is figuring out exactly how much you owe, and whether you have federal or private student loans. If you haven’t kept track of your student loans — which is a fairly common occurrence given the whirlwind nature of college and graduate school — then you have a few options.
For federal student loans, you can log onto the National Student Loan Data System via the United States Department of Education’s website. There, you can find your student loan amounts and balances, your loan servicers and their contact information, the interest rates for your loans and your current loan status.
For private student loans, you will need to request a copy of your credit report from one of the three major credit reporting agencies. You are entitled to a free report each year. These documents will list your outstanding student loans, including the companies that hold them. You can then request your loan documents directly from the lenders.
Once you have this information, you are ready to learn more about your student loans. Read on to learn more about the two basic types of student loans — federal and private — as well as the unique features of each.
Federal Student Loans
Federal student loans are offered through the United States Department of Education. There are two different types of federal student loans: direct loans and Perkins loans.
With direct loans, the Department of Education is the lender. With Perkins loans, the school is the lender. Perkins loans are only available to undergraduate and graduate students with exceptional financial need. Perkins loans are limited to $5,500 for undergraduate students per year and $8,000 for graduate and professional degree students, with total lifetime limits of $27,500 for undergraduate students and $60,000 for graduate students.
There are three types of direct federal student loans. Direct subsidized loans are available to undergraduate students with a demonstrated financial need to help them pay for the cost of a degree at a college or career school.
With subsidized loans, the government covers the cost of interest while the student is enrolled at least half-time in school, in a grace period, or in a period of deferment or forbearance. Students are limited to a maximum of $5,500 per year in subsidized loans.
Direct unsubsidized loans are available to undergraduate, graduate or professional students. They are similar to subsidized loans, except that students do not have to demonstrate financial need to be eligible, and students are responsible for interest on the loan.
Unsubsidized loans are limited to $20,500 per year, less any subsidized loans. Direct PLUS loans are available to graduate or professional students and to parents of dependent undergraduate students. PLUS loans are to be used to pay for educational expenses that are not covered by other types of financial aid; the maximum amount that can be taken out is the cost of attendance minus any other financial aid that a student receives.
Other than PLUS loans, federal student loans are not based on an applicant’s credit history. PLUS loans simply require that an applicant not have a negative credit history. Instead, federal student loans either require demonstrated financial need or simply that students fill out an application.
Private Student Loans
In contrast to federal student loans, private student loans are offered by private institutions, such as banks. These loans are approved based on the creditworthiness of the applicant. For this reason, most private student loans require a cosigner if the borrower is under the age of 25 or does not have a strong credit history.
A cosigner is a person who agrees to sign a loan alongside the primary borrower — the student — and who will become responsible for the loan in the event that the primary borrower does not repay it. This could happen for any number of reasons, including unemployment, death or disability.
A cosigner is often a parent, family member or close friend, and will typically need to have a high credit score. Having a cosigner on a private student loan can help a borrower obtain a much lower interest rate on a private student loan. Many lenders permit borrowers to release cosigners from their loans after making a certain number of on-time payments and reaching a certain credit score or income level.
If you are just starting to make your student loan payments, understanding the basics about your student loans can help ensure that you are on top of your student loan debt — and that you pay off your loans as quickly as possible.
Drew Cloud started The Student Loan Report when he found it difficult to find student loan information in one place. He now regularly writes about the latest student loan news as well as advice articles for those in college as well as for graduates working to repay their debt.