Student Loans

A tale of Two Students:

Ashley and Andrew enroll at GVSU at the same time as incoming freshman. They have the same goal of earning a bachelor’s degree in Journalism. They both apply for student loans to help offset the cost of enrollment. Both qualify for student loans totaling $12,500 per year.

Andrew accepts the full amount. After he pays for essentials, he finds he has excess that he uses to pay for a spring break trip, a flat screen TV, a new iPhone, and lots of pizza.

Ashley calculates a budget that allows her to borrow only half of what’s offered to her, or $6,250 per year. Her loans are spent on essentials like tuition and books and they help to offset her rent costs. Additionally, she works part time to supplement her borrowing and she finds creative ways to keep her living expenses down, such as cooking her own meals and sharing an apartment with several roommates.

Four years later, Ashley and Andrew graduate with identical degrees and they receive similar job offers from the local newspaper. The starting salary is $25,000/year. What differs is their student loan debt. Andrew starts his career owing $50,000 while Ashley owes $25,000. What does this difference mean in terms of their future lifestyle? Assuming an 8% annual interest rate and a ten year repayment plan to pay back their loans, Ashley will pay approximately $303 a month on student loan debt (out of the $2,000 a month income). Andrew will pay around $607/month (from the $2,000 a month income).

Over the course of ten years, Ashley will pay back $36,360 including $11,360 in interest. In the same timeframe, Andrew will pay back $72,840 including $22,840 in interest alone.

 
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Amount you Owe

Do you know how much Student Loan Debt you have?

The best place to find your complete loan history of federal loans borrowed is at the National Student Loan Data System website. In addition to loan history, contact information is provided for the servicer that holds your loan.

National Student Loan Data System - Student Access

 
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Types of Loans

Student loans are a good investment in your future. It’s a good idea to keep borrowing to a minimum. Borrow only what you need to cover necessary expenses, not extras. To lower your monthly payments, pay interest while in school or in your grace period. Unpaid interest is added to your loan balance (capitalized) when you enter repayment. Meaning you will be paying interest of your interest if capitalized!

 The most common loan types are: 

  • Subsidized Direct Loan - no interest due during the in-school or grace period.
  • Unsubsidized Direct Loan – Interest begins to accrue at the time of disbursement and will continue throughout the life of the loan.
  • Perkins Loan – no interest due during the in-school or grace period. Some loan forgiveness options.
  • Parent PLUS  – available to parents of dependent students.
  • GRAD PLUS Loan - For graduate and professional students.
  • Private or Alternative Student Loans.

  

 For a description of loan terms and interest rates, click here.

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Repayment

There are many repayment options offered to borrowers.  Payment generally begins 6 months after you are no longer enrolled at least ½ time (9 months for Perkins Loans). Below is a description of each of the repayment options.


Standard Repayment Plan: is a fixed amount of at least $50 each month for up to 10 years. This plan results in the lowest total interest paid of any repayment plan. If you have not selected a repayment plan by the time repayment begins, your loan(s) will be placed on this plan.

Extended Repayment Plan: is a minimum payment of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. In order to be eligible for this plan your Direct Loan balance must be greater than $30,000. This plan may be beneficial if your income is low now, but is likely to steadily increase.

Graduate Repayment Plan: is a minimum payment at least equal to the amount of interest accrued monthly for up to 10 years. Your payments start out low, and then increase every two years. This plan may be beneficial if your income is low now, but is likely to steadily increase.

Income Contingent Repayment Plan: This plans is designed to give you the flexibility to meet your student loan obligations without causing undue financial hardship. The maximum repayment period is 25 years under this plan. You are not eligible for this plan if you have a Direct PLUS Consolidation Loan(s) made before July 1, 2006 and/or a Direct PLUS Loan(s). Your monthly payment is based on your family size, annual AGI and total amount of your Direct Loan(s).

Income-Based Repayment Plan (IBR): This plan is an alternative to the Income Contingent Repayment (ICR) Plan and is designed to make repaying education loans easier for borrowers in a partial financial hardship. Another difference is that IBR loans do not continue to accrue interest for the first three years. It is designed to help students who intend to pursue jobs with lower salaries, such as careers in public service.

Direct Loan Consolidation: Direct Loan Consolidation: A Direct Consolidation Loan allows a borrower to combine multiple federal student loans into one loan. The result is a single monthly payment instead of multiple monthly payments. Be sure to weigh the pros and cons of consolidating. While it does simplify loan repayment, it can also significantly increase the total cost of repaying your loans. For guidelines in determining if a consolidation is right for you go to Loan Consolidation.

For more information on any of the options above to go:

 

Federal Student Aid, an office of the U.S. Department of Education: Proud sponsor of the American mind.

Student Loan Repayment Plan Information and Calculator

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Page last modified October 14, 2013