Student loans key terms
A co-signer is a person who also agrees to repay a loan. Private lenders sometimes require a borrower to get a co-signer. Having a co-signer may allow a student to borrow at a lower interest rate if the co-signer has a good credit record, but it carries risks for the co-signer. Before you co-sign a loan or ask someone to co-sign a loan, you should consider the obligations and risks associated with co-signing a loan.
Co-signers are equally responsible and legally obligated to repay the loan. Co-signers should consider whether they are willing and able to repay the loan if the student borrower does not repay the loan on time.
Any late or missed payments for a co-signed loan will affect both the co-signer and the student’s credit history. A co-signer should decide before co-signing a loan whether they are willing to risk harm to their credit record if the student borrower does not repay the loan. Private lenders often hire collection agencies to get a co-signer to repay. A lender or a debt collector may also sue a co-signer.
Some lenders may offer to release the co-signer from the loan once the primary borrower or student borrower makes a certain number of on-time payments and meets other credit requirements, including a credit check. Your student loan servicer might not tell you when you are eligible to have your co-signer released. If you are interested in releasing your co-signer, you should contact your servicer to find out if you are eligible and what steps your lender requires. Here are sample letters seeking co-signer release that you can edit and send to your student loan servicer.
Cost of attendance
The cost of your education, including tuition & fees, housing & meals, books & supplies and other expenses.
For most federal student loans, you can be declared in default if you have not made a payment in more than 270 days.
Private student loans often go into default as soon as you miss four monthly payments (120 days). You can also be declared in default on a private student loan if you declare bankruptcy.
Missing payments or paying late is bad for your credit history and may make it harder to dig out of debt later. If you are having trouble making payments or if you think you are unable to pay, contact your servicer immediately. Do not wait until your loan is in default.
A deferment is a temporary pause to your student loan payments for specific situations. You might seek a deferment for active duty military service and reenrollment in school.
The U.S. Department of Education (ED) . If you have a subsidized loan, you don’t have to pay interest on the loan during deferment. If you have an unsubsidized loan, you are still responsible for the interest during deferment. If you don’t pay the interest as it accumulates, it will be added to your loan balance, and the amount you have to pay in the future will be higher.
Private student loans may or may not have a deferment option. Deferment practices vary among private lenders.
Discharge due to disability or death
Discharge relieves you from having to repay your loan and may be available in certain circumstances.
For federal student loans, in the event that you become disabled, you may be able to discharge the federal loans through total and permanent disability (TPD) discharge. In the case of total and permanent disability of the borrower, federal student loans can often be discharged. There is a special process to make this disability determination. The U.S. Department of Education has established a with further details.
Federal student loans do not transfer to another person if you die. Your relatives can notify the loan servicer, and the loans will be canceled.
For private student loans, unlike federal student loans, there are no legal requirements to cancel private student loans for borrowers who die or become disabled. In certain cases, private lenders have special provisions to discharge loans. Check the terms and conditions of your loan, or contact your servicer for more details.
The Extended Repayment Plan allows you to make lower monthly payments over a longer period of time than the standard ten year repayment period.
Under this plan, your monthly payments are
- a fixed or graduated amount,
- made for up to 25 years, and
- generally lower than payments made under the Standard and Graduated Repayment Plans.
However, you will end up paying more over time than under the 10-year Standard Repayment Plan.
All loans made by the U.S. Department of Education require you to complete the Free Application for Federal Student Aid (FAFSA®). Schools that receive information from your FAFSA® will be able to tell you if you qualify for federal student loans. Almost every American family qualifies for federal student loans.
Even if you are not sure you'll be eligible for any federal aid, you still need the FAFSA®. Schools often award scholarships and other grant aid using FAFSA® information.
Federal student loans
Federal student loans are loans made or guaranteed by the Department of Education. Types of federal student loans include:
- Direct Subsidized and Unsubsidized student loans: These loans, also known as Stafford loans, are a type of federal student loan that are either subsidized—the government pays the interest while you're in school—or unsubsidized—you pay all the interest from the time you get the loan.
- PLUS loans: There are two types of PLUS loans: the Parent PLUS loan, available to parents of undergraduate students, and the Grad PLUS loan, which is available to students pursuing graduate degrees. All PLUS loans have a fixed interest rate and are not subsidized.
- Perkins loans: A Perkins loan is a type of federal student loan based on financial need. Perkins loans are available to undergraduate students. A Perkins loan is a subsidized loan, meaning that the federal government pays the loan’s interest while you are in school.
Learn more about the differences between federal student loans and private student loans.
Forbearance is a temporary postponement or reduction of your student loan payments for a period of time. You can ask for forbearance if you are experiencing financial difficulty.
- Federal student loans: Your federal student loan servicer can grant forbearance for up to 12 months at a time. You have to apply to your loan servicer for forbearance. You must continue to make payments until you receive confirmation that your servicer has accepted your forbearance request.
- Private student loans: Private student loan forbearance varies. It is more limited than the federal student loan forbearance. Some servicers charge borrowers a flat fee to place loans into forbearance for a period of three months. Contact your private student loan servicer as early as possible if you want to explore this option.
GI Bill® benefits offer education benefits for servicemembers and veterans. This funding covers tuition and fees, a monthly living allowance, and an annual book stipend. GI Bill® benefits do not need to be repaid.
Graduated repayment is a way to repay your student loans that works for those who expect their incomes to rise over time. In graduated repayment, payments start off low and increase every two years. You can contact your loan servicer to get information or to enroll. All federal student loan borrowers are eligible for this program.
A grant is a type of financial aid that does not have to be repaid.
Income-Driven Repayment Plans include
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
Income-driven repayment plans cap your monthly payments at a certain percentage of your discretionary income. Your payments may change as your income or family size changes. You must submit info on your income and family size each year to stay enrolled.
If you repay your loan under an income-driven repayment plan, you may be eligible for loan forgiveness after . If you work in public service, you may be eligible for loan forgiveness in as few as 10 years.
When you consolidate your student loans, you are actually taking out a new loan. Consolidation allows you to combine several student loans into one larger loan.
Private student loans
Private student loans are any student loans that are not federal student loans. These loans are not the same as federal student loans. They do not have the same flexible repayment terms or the full range of borrower protections as federal student loans. Private student loans are not funded or subsidized by the federal government. Private student loans are funded by banks, credit unions, state loan programs, or other types of lenders.
Learn more about the differences between federal student loans and private student loans.
Public Service Loan Forgiveness
Public Service Loan Forgiveness is a program designed to help people manage federal student loan debt while pursuing a career in public service. Public Service Loan Forgiveness (PSLF) is available to many employees working in public service including all levels of government, states and municipalities, school districts, public hospitals, non-profit organizations, and more. Learn more about the steps you should take if you are interested in PSLF.
Servicemembers Civil Relief Act (SCRA)
The Servicemembers Civil Relief Act (SCRA is a federal law that provides protections for military members as they enter active duty.
If you are currently serving on active duty, you are eligible to have your interest rate lowered to 6% on loans, including all student loans, taken out prior to your active duty military service. This benefit applies to both your federal and private student loans and is available for all active duty servicemembers, regardless of where you serve.
Unless you arrange for a different repayment schedule with your loan servicer, the standard repayment schedule is 120 months (10 years). Payments are a fixed amount over the life of the loan.
Student loan servicer
Your loan servicer is the company that sends you your bill each month. Servicers are companies that collect payments on a loan, respond to customer service inquiries, and handle other administrative tasks associated with maintaining a loan. Loan servicers also track loans while the borrowers are in school, , maintain loan records, process payments, accept applications and process changes in repayment plans, deferments, forbearances, or other activities to prevent default.
Subsidized loans are typically federal student loans. For all subsidized federal student loans, the U.S. Department of Education subsidizes (pays the interest on) your loan while you are in school and during periods of deferment, such as during military service. Subsidized loans are available for eligible students who demonstrate financial need. You will be notified by your school if you qualify for a subsidized loan, after you complete the Free Application for Federal Student Aid (FAFSA).
Private student loans are typically unsubsidized and you can expect to pay all the interest that accrues, including interest that is charged while you are in school. The interest will be piling up while you are in school for you to pay back after you finish school.
Total loan balance
It is important to keep track of how much you are borrowing to pay for college.
To find out the balance of your federal student loans, you should visit the National Student Loan Data System (NSLDS) at . NSLDS is the U.S. Department of Education's central database for student aid and provides a centralized, integrated view of your federal student loans and grants so you can access and inquire about them.
To find out the total balance of all your private student loans, you’ll need to contact each of your private student loan servicers to determine your total loan balance or check your credit report.Unlike federal student loans, there is not a single website that contains information about all of your private student loans. If you do not know about private student loans you might have, request a free credit report at . Private student lenders may report your loans to credit reporting agencies even while you’re still in school or in deferment.
For unsubsidized loans, a borrower is responsible for the interest that builds up on the loan while they are in school.
Federal Work-Study helps provide part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.