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Financial Literacy: Student Loans

Find a penny, pick it up...and put it into your retirement fund! Financial Literacy focuses on making smart financial decisions and planning for the future.

Financial Aid at Duquesne

Visit Duquesne's Financial Aid office to learn more about your options. Browse the loans here to see which ones require an exit interview. (Exit interviews just verify that you know how to repay your loans. And hey - now that you're financially literate, you do!)

Understanding Student Loans

There are many two broad types of student loans: Federal and Private.

Federal Loans (from Duquesne's Financial Aid Office):

Federal Direct Loan (Subsidized and Unsubsidized): "A subsidized loan is awarded on the basis of financial need. It is funded by the federal government and administered through colleges and universities. Students receiving these loans are not charged any interest [until 6 months after they graduate] and do not have to begin repaying the loan while they are enrolled in school at least half time, during a grace period, or during authorized periods of deferment." (Graduate students are no longer eligible for subsidized Direct Loans.)

"With an unsubsidized loan, you will be charged interest from the time the loan is disbursed until it is paid in full. You may choose to pay the interest while you're in school to reduce your final repayment amount." (Note: making small payments on your unsubsidized loans whenever possible while in school will reduce the overall interest accrued over time!)

Direct PLUS Loans: Parent PLUS is "[a] Federal loan available to parents of dependent undergraduate students. A separate application is required and must be applied for through Federal Direct Loans. Maximum is calculated cost of education minus all financial aid."

Graduate PLUS is "[a] Federal loan available to Graduate students. A separate application is required and must be applied for through Federal Direct Loans. Maximum is calculated cost of education minus all financial aid."

Private Loans:

If federal loans do not cover your entire tuition, you may need private loans. They're more difficult to get, as they require a credit check, and more difficult to pay off, as the interest rates vary and usually rise if you miss a payment. Duquesne does not endorse any private lenders, but we do recommend that you apply with a cosigner to reduce your interest rates!

Piggy Bank and Dollars

Source: Pictures of Money, Flickr, CC BY 2.0

Everything You Need to Know About Repayment

For federal loans, the government grants you a 6-month grace period after graduation to begin repaying your loans.

Standard Repayment Plan: a fixed, 10-year repayment plan. This is always the cheapest plan, especially if you pay more than the minimum amount and pay the loan off early - this lowers the total amount of interest accrued!

Graduate Repayment Plan: starts off with lower payments and gradually increases over time (along with your income, in theory.)

Extended Repayment Plan: fixed or graduated, up to 25 years.

You may also Pay As You Earn or choose an income-contingent plan, but these plans have many rules and regulations and should only be selected if you have a varied income to the point where you may have trouble paying any of the above plans.

Consider consolidating your loans, which means that you roll them all into one package - this increases the loan period, but switches any variable interest rates to an averaged, fixed rate.

Paying off your student loans is a game and there are so many plays in the playbook. You can sign-up for auto-payments with some lenders to decrease the interest rate. If that's not an option, you can set up biweekly payments to give one extra payment a year and reduce interest accrued. You can simply add an extra $5 to your payments for one year or use your tax refund as an extra yearly payment. And sometimes, if you play your cards right, all of your remaining debt will be forgiven.

Source: Federal Student Aid 

What does it mean to "default" on a loan?

Defaulting is the "failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days. If you default on a federal student loan, you lose eligibility to receive federal student aid and you may experience serious legal consequences."

Lenders handle this differently, but one thing is always the same: defaulting on a loan negatively affects your credit score for the next seven years. Usually, there are options for loan rehabilitation ("The process of bringing a loan out of default and removing the default notation from a borrower's credit report") to assuage your situation slightly.

If you know you won't be able to make upcoming payments (for instance, you lost your job and temporarily have no income), apply for deferment or forbearance. Make sure you do this before you default, as these options will be taken away after you default.

Deferments are one way to postpone payments for a length of time. Note: you will have to keep making payments up until your deferment is approved, so make sure you apply well ahead of time before your money runs out. Additionally, some loans continue to accrue interest.

Forbearance also postpones payments, but doesn't always require documentation (so it can sometimes begin faster.) Forbearance always means that your loans will accrue interest.

Is part of the problem that you get paid after your loan due date every month? Call your lender and see if you can change your due date!

Source: Federal Student Aid