Imagine a grassy knoll littered with college students and books, smelling of rank pizza and fermenting beer, each can illuminated by the sun, casting a golden glow over the campus.
It’s a beautiful sight.
Off in the distance, students frolic and play, socializing carelessly. They all giggle happily, basking in their responsibility-free lives.
Suddenly, the picturesque scene is disrupted by rolling dark clouds enveloping the sky. The students scatter, searching for cover, leaving papers whipping in the screeching wind. From above, the lightning and thunder crash as a tornado eats the campus and...
Okay, so this is a little “dramatic,” but I want you to take it all in. The looming dark clouds? Those babies are your student loans, the reality checks that dampen the mood on your grassy knoll. Whether you're heading to the big U this fall or you’re already enrolled, it’s fair to assume that you’ve come in contact with student loans. Now, the question remains as to what they are and what are your options. Without further adieu, let’s get crackin’.
Step Right Up!
Alright, first things first, what is a student loan? Thanks to the trusty dusty web, it’s defined as “an educational loan with interest.” Very insightful, no? Yeah, didn’t think so.
For students, the first step to loans is completing a Free Application for Student Aid (FAFSA). Those pesky buggers may be a pain in the rear, but trust me, they are the foundation of your financial aid package. After filing one of these bad boys, your school/university will contact you with an award overview, where you can see your scholarships (if you have received any) and loan offers. Using the information provided by your FAFSA, your school and the Department of Federal Student Aid will offer you loan options (for example, I was offered a PLUS loan and an Unsubsidized loan on my overview). Now that your school has dealt you the cards, it’s time to choose which hand to play.
Holiday Hooby Whatty?
Student loans are offered through Direct Loan Programs in which there are three main types, each with different payment options and interest rates.
1.) Subsidized Loans: This loan is commonly offered to Undergraduate students. This option has no interest charged on the loan if the student is at school at least part-time, during grace periods, and during deferment.
Current Interest Rate: Fixed at 6.8%
2.) Unsubsidized Loans: Spanning a little wider student audience, the Unsubsidized loans are allotted to Undergraduate, Graduate, or Professional Students. These are not based solely on financial need, and interest is charged during all periods (grace, deferment... everything).
Current Interest Rate: Fixed at 6.8%
3.) Direct PLUS Loans (Parents and Graduate or Professional Students): For students who are dependent, the PLUS loan is offered to the parents. Professional students are the other likely candidates utilizing a PLUS loan. Also deemed an unsubsidized loan, PLUS loans are all of the expenses up to the cost of attendance, except all other financial assistance. Interest on the PLUS loans is also charged during all periods.
Current Interest Rate: Fixed at 7.9%
The Real Shiznit
Unlike scholarships which are automatically accepted as part of your financial aid package, student loans need to be accepted or denied to become applicable. Being offered student loans doesn’t mean that you have to accept them! If you have the money saved in your bank account, it’s highly suggested to avoid the loan as much as possible. You have the right to decline student loans or lower the loan amount (I used both of these tactics). Once everything is squared away, the money will then be disbursed at the beginning of the academic year.
Once you’ve scored your degree (or withdrawn from school or dropped below half time enrollment) you’ll receive a 6 month grace period. I also like to think of it as the “Get-Your-Crap-Together” Period. The grace periods are offered for direct loans and subsidized loans, and the end of the grace period is the beginning of the repayment process (also, although you’re not in school, interest is still compiled on your principal loan amount during the grace period if you carry a PLUS loan or Unsubsidized).
Paying Interest in School
Before reality strikes and the process of repaying your loan begins, do yourself a favor--pay on the interest of your loan while you're in school. By doing this, you will only be paying toward the principle once you graduate. If you choose to not pay the interest while you’re attending, you’ll have to defer the loan until you’ve finished school. My vote? Get ahead of the game, start taking care of your debt ASAP!
Student loans are intimidating. They are real-world, adult decisions (the first of many) that we have to sift through once we hit college. Trust me, you’ll be okay, just take a deep breath, eat a piece of chocolate, and talk about it. Mom and Dad are always ready to listen. If your family has more questions regarding your financial package, call your school - that's what they’re for! Good luck out there, reader, you are on the right track!