For millions of Americans, student loan debts are among the types of debts that are something that is always in the back of their minds. They can be very complicated, and this can lead to a lot of questions. We’ve compiled a list of the most frequently asked questions about student loan debt to give you the answers you seek in one place below.
What types of student loans are available for college expenses?
You can break student loans down into three broad categories. There may be Federal Pell Grants available, but you can borrow from the government if you don’t qualify. Your choices are Direct Stafford loans, Perkins loans, or PLUS loans. Direct Stafford loans come in Subsidized and Unsubsidized forms, Perkins loans are for students in great financial need, and PLUS loans are for a college student’s parents to apply for to help fund their education.
What is the FAFSA?
FAFSA stands for the Free Application for Federal Student Aid. This application determines whether you can get grants you don’t have to pay back. It’ll also determine your eligibility for student loans through one of the three programs we mentioned earlier. You have to report all of your income and your parent’s income on the application, and they assign grants and loan amounts based on need.
Can you invest your excess student loan funds?
According to Best Student Loans, it depends on the type of loan you get whether or not you can legally invest your student loan funds. If you have private student loans, there aren’t many restrictions attached to them. However, investing any excess funds from a subsidized federal government loan could require you to face legal action or pay subsidized interest on the amount you invested.
Is it possible to cancel your loans when you’re in school?
Yes. You can cancel your loans even after you signed the promissory note. You can cancel a Stafford Loan, Perkins Loan, or a PLUS Loan if you tell your school that you won’t accept the loan payment within 14 days of your school telling you the lender disbursed your loan. If it’s later, you can wait until the first day of the payment period and still cancel it. You can return the funds to the school and refuse them as well.
What repayment plans are available?
If you want to make your payments more affordable, you have several repayment options available. Keep in mind that you will end up paying more in interest the longer you repay your loans. We listed the repayment options below.
- Standard – You’ll pay a fixed amount every month for 10 years.
- Extended – You’ll pay a fixed amount every month for 25 years.
- Income-Based – You’ll pay a monthly payment amount capped at your income level and family size.
- Graduated – You’ll pay smaller payments to start with, and they’ll gradually increase to standard payments over time.
- Consolidation – You can consolidate your PLUS, Perkins, and Federal loans into a single loan with a fixed interest rate.
- Further read: Types of Interest guide
What is Public Service Loan Forgiveness?
Under this program, you’ll make 120 qualifying payments using a qualifying repayment plan. You also have to work full-time for a qualifying employer and submit proof that you stayed employed with them throughout the payment process. When you make it to the 120 payments under these conditions, the government will forgive whatever balance you have left. If you miss a single payment, it starts over. Also, the IRS can tax you on any balance the government forgives. You can find out more by clicking here.
How do you find out which type of government loan you have?
Student loan debts can easily blur together, and it can be challenging to find out which type of government loan you have. However, the National Student Loan Data System on Studentaid.gov will tell you who holds your loans with your contact information.
What happens if you can’t make your payments?
If you’re struggling to pay your student loans, you can apply for deferment or forbearance for one year at a time. If you defer your loans, it freezes everything for a year. Forbearance also freezes your payments, but your interest still adds to your balance each month. You should contact your loan servicer and see which one they suggest.
Can student loans get canceled?
There are a few circumstances where the government could cancel your student loans. They include the borrower’s death, permanent or total disability based on a condition you didn’t have when you took out the loans, the school closed while you were going or 90 days after you withdrew, and false certification. False certification is where the school signed your name on a promissory note without your knowledge.
Does declaring bankruptcy means the government discharges your loans?
Rarely. For this to happen, the bankruptcy court has to believe that keeping your student loans would cause undue hardship. This is very rare, and you could still have loans in default after you declare bankruptcy.
What is loan rehabilitation?
Once you default on a student loan, the lender will give you one chance to rehabilitate it. You’ll have to make nine consecutive monthly payments that are affordable and reasonable to you. Once you do, the lender will put your loan back in good standing and remove it from the default status.
When do you start paying back your student loan debts?
You’ll start to repay your student loans after you drop below half time status or finish your schooling. Perkins loans have a nine-month grace period before you have to pay, and Stafford loans have a six-month grace period. Your loan lender will send you monthly payment notifications when your grace period ends. For PLUS loans, you start repaying it 60 days after the disbursement date, even if you’re in school. You must make each payment in full by the due date. The only exceptions are if you made a deal with the lender or signed up for forbearance or deferment.