Financial Considerations

Student Loans

Post-secondary education can be expensive, and students often have to take advantage of a variety of opportunities available to help them pay for this cost. Students typically receive a financial aid package from the financial aid office of their school upon acceptance and for each semester or year during which they enroll in coursework.

Financial aid for higher education can include scholarships, work-study programs, grants, and loans offered by local, state, or federal government or by private entities such as non-profit organizations, banks, credit unions and others. Typically, as long as a scholarship or grant is used for its intended purpose, a student does not have to pay it back upon graduation. However, should the student not use the scholarship or grant for its intended purpose, they may owe money to the organization that funded them either during their studies or after they have completed their program. Students who take out private and/or federal loans to cover the cost of their education must start paying back their loan amount (plus accrued interest) when they graduate, withdraw from college, or if they enroll at less than half-time status. The first step in paying back loans is determining the type of loan(s) you have and the repayment terms.

Private vs. Federal Loans

Depending on the type of loan a student has, repayment options will vary.  There are private and federal loans, and it is not uncommon for a student to use a mix of both to finance their education. A federal loan is a loan that has been provided by the federal government, whereas a private loan is provided by a lender other than the federal government, such as a bank, credit union, state agency, or a school. Federal loans include Perkins Loans, Direct Subsidized and Unsubsidized Loans (including Stafford Loans), as well as Direct PLUS Loans. Though the federal government ceased disbursing Perkins loans in 2018, many students are still paying off these loans. The first step in making repayment plans is to determine which type of loans you have and the terms of repayment for each.

Private Loans

  • Private loans are provided by a lender other than the federal government, such as a bank, credit union, state agency or school.
  • The grace period for private loans is typically six months, but borrowers should check with their lender to confirm
  • Interest rates on private loans are often variable-rate, meaning the interest rate can change
  • Additional fees, such as a repayment fee, may apply and are determined by how creditworthy the applicant is
  • Prepayment penalties (if the loan is fully repaid early) are not assessed, meaning there is no fee for paying off the balance in full before it is due!

Federal Loans

  • Federal loans are provided by the federal government
  • Interest rates are fixed
  • The loan may be subsidized or unsubsidized; in general,
    • A subsidized loan does not accrue interest while the student is still enrolled at least half-time
    • An unsubsidized loan accrues interest from the moment it is disbursed (unpaid interest is capitalized, which means that it is added to the principal balance and more interest accrues on top of it)
  • The grace period may be 6 or 9 months, depending on the loan type
  • Default and origination fees are included

Repaying Your Student Loans

Repayment of student loans can be the first major financial obligation that students must manage after they have completed post-secondary training and/or college. Many students will have more than one loan to repay; it is important to pay attention to the separate terms for each one.

Private Loans

Lenders can provide information about the various private student loan repayment plans. They may offer plans similar to federal loans or give discounts for automatic debit payments. It is important to carefully read the private loan contract and to explore options with the lender.

Typical Private Student Loan Repayment Plans:

  • Full Loan Deferral – no requirement to pay principal or interest while in college (for up to four consecutive years). Payment begins six months after graduation, or when the student withdraws or has less than half-time status. Interest will accumulate while the loan is deferred and will be added to the loan when repayment starts.
  • Interest Only – required to pay only the interest that has accrued while in college (for up to four consecutive years). Then, 45 days after graduation (or when less than half-time status occurs), payment of principal and interest will start.
  • Immediate Repayment of Loan – once the loan is disbursed, payment begins immediately for both the principal and interest.

Terms for Repayment:

  • Can range from 10-25 years.
  • Check into private student loan consolidation after repayment has begun to see if it is possible to refinance loans at a lower interest rate or secure a longer term of repayment so that monthly payments are less.

Federal Loans

Check with the National Student Loan Data System to learn the number and amount of the loans a student has.

Federal Student Loan Repayment Plans Include:

  • Standard repayment – a fixed amount is paid each month based on principle and interest. Minimum of $50. Repayment in 10 years.
  • Extended Repayment – eligible borrowers receive a payment term of up to 30 years. Monthly payments are less, but more is paid over the life of the loan.
  • Graduated repayment – lower payments are made at the beginning of repayment then increase.
  • Income-based repayment – payments are based on a percentage of the borrower’s income and household size. There are income-contingent and income-sensitive repayment plans as well that have loan terms from 10-25 years. For more information, check Student Loan Borrower Assistance and the Department of Education website.

Terms for Repayment:

  • Can range from 10-30 years.
  • Check into student loan consolidation during the grace period to see if it is possible to refinance loans at a lower interest rate or secure a longer term of repayment so that monthly payments are less. For more information, check the Federal Direct Consolidation Loan Information Center

Repayment Plan Calculator & Tips

Use this Calculator to determine the amount of your monthly payment.

Repayment Tips:

  • Pay on time and submit the amount that is due.
  • Notify lender of any changes in contact information to avoid missing a payment.
  • Create a file and keep all loan information, statements, correspondence, and dates that payments have been made together.
  • Contact lender if repayment becomes difficult to see what options are available, such as Deferment, Forbearance, Graduated Repayment or Income-Sensitive Repayment. Be sure to make payments until another option has been approved.
  • Important to Remember: Don’t Default!

So that a good credit rating can be established and/or maintained, repaying student loans on time is important.

What should I do if I am having trouble repaying my loans?

There are options available for individuals facing hardship repaying their student loans. The most important thing to do during a period of hardship is to proactively communicate with your lender!  Call your lender to discuss available options before you miss a payment.  Everyone goes through hardship – ignoring the problem or failing to make payments without communicating with your lender will only make things worse.

Two types of temporary assistance that are often provided to individuals going through financial hardship are deferment and forbearance. When a student’s loan goes into deferment, their payments are postponed and interest may or may not need to be paid.  When a student’s loan goes into forbearance, payments on the loan principal are either postponed or reduced, though the student is still responsible for paying interest on the loan.

For additional information on other temporary relief options, check out the Department of Education’s Student Aid website and consult your lender.

What should I do if I have defaulted on a student loan?

If one or more of your federal student loans has gone into delinquency or default, it is important to actively address the situation so that you can begin to demonstrate fiscal responsibility. Rectifying the delinquency or default and leaving it well in the past will improve your likelihood of qualifying for a security clearance.  A loan is considered delinquent after your first missed payment, but there are options available for someone with a delinquent loan to avoid default.  A loan that remains delinquent over a period of time (varying depending on the type of loan) will go into default.

The federal government offers a variety of options to get out of default on a federal student loan. These options include loan rehabilitation (where you pay a specific amount that is tied to your income for 6-9 months and then enter a standard repayment plan), loan consolidation (where you pool your defaulted loans into one new loan that you then pay off according to an income-driven repayment plan), and full repayment.

Private student loans will have specific terms for delinquency and default that are set by the lender. A student facing delinquency or default on a private student loan should contact their lender immediately for information on their repayment options.