Depending on your financial situation, you can apply for different types of student loans. Unsubsidized loans have interest-free periods of six months while subsidized loans are available to students who can demonstrate financial need. There are several types of repayment plans available: Income-based and Graduated. The interest rate on a student loan varies from lender to lender. You should know the terms of each loan before applying for one. This article will go over the advantages and disadvantages of each.
Unsubsidized loans have a six-month interest-free grace period
While the unsubsidized student loan grace period is six months long, it doesn’t mean that you don’t have to pay. You’ll still be free from interest during this period if you re-enroll in school, and the grace period is not affected by summer breaks. If you leave school for the entire semester, however, you’ll have to begin repayment immediately.
Even though the six-month interest-free grace period doesn’t apply to subsidized loans, it’s helpful to plan ahead. While you may not have enough money to cover your entire loan balance during the grace period, the extra time you’ll have will give you plenty of time to get your bearings. The six-month period can also help you create a budget since you’ll have a ballpark figure for your monthly expenses.
When you graduate, you’re still responsible for paying your unsubsidized loan, so you’d better make payments during this time. This is an especially good time to make a lump-sum payment, as you can reduce your loan balance by more than half in that time. However, you must be aware of the requirements of the unsubsidized loan grace period, as they differ by school.
Federal Direct Subsidized Loans are for students with demonstrated financial need
Undergraduate and graduate students may be eligible for a Federal Direct Subsidized Loan to help pay for school. The Direct Subsidized Loan is free of interest while you are enrolled at least half-time in a qualifying college or university. Unsubsidized loans are not free of interest but are available to all students. Unsubsidized loans accrue interest immediately after disbursement.
To determine your eligibility for a student loan, you will need to submit a FAFSA (Free Application for Federal Student Aid) and be enrolled at least half-time. You must also show financial need. The U.S. Department of Education establishes specific eligibility criteria for student loans. You must complete a FAFSA to apply, be enrolled for at least six credits, and have a verified family income.
The Direct Subsidized Loan program is an excellent way to pay for college. Direct Subsidized Loans have lower interest rates than Direct Unsubsidized Loans. You can get these loans without a co-signer or a credit check. You do not need to worry about repaying the loan until you’ve graduated and you don’t have to pay it back yet.
Graduated repayment plans
The first benefit of a graduated repayment plan for student loans is that your payments begin at a low rate and then increase gradually every two years. Graduation of payments can take as long as 30 years, and the concept is that the loan servicer expects your income to rise over time, so payments should increase accordingly. The monthly amount of payments must be equal to at least 25 percent of the principal amount borrowed, but can’t be more than 150 percent.
Another benefit of a graduated repayment plan is that it ensures you pay off your federal student loans within a 10 to 30-year period. The payments start low and increase every two years, making them the perfect option for borrowers with a relatively low balance. This type of repayment plan is best suited for fresh graduates with no income or a steady job. However, it is not suitable for those who wish to seek public service loan forgiveness.
If you want to qualify for an income-driven repayment plan, you will need to recertify your income and family size every year. If you don’t, you can request a recalculation of your payment. To do this, you need to submit a new application and select recalculate payment amount’ as the reason for doing so. The servicer will recalculate your payment amount accordingly.
If you think you might qualify for an IBR plan, contact the lender and discuss the options. Generally, an individual would pay around 30% of their income on an Income-Based Repayment plan. For a family of two earning $50,000, a monthly payment on an Income-Based Repayment plan would be around $372. If you’re married, you can pay up to 50% of your income. However, if you’re unmarried and don’t have a spouse, you must pay at least 30% of your income.
The Income-Based Repayment plan makes it easier for more people to qualify for a lower payment. The IBR calculator compares your adjusted gross income to the student loans you’ve taken out. If you earn less than 150% of the poverty level, you won’t have to make any payments at all. For people earning more than 1.5 times the poverty level, their payments will be capped at 15%. The best part is, that your payments will never exceed the standard 10-year repayment plan.