Federal Loans Are Almost Always the Best Option
Federal loans are designed by the US government to bring fair and just terms for students entering the university level education system. The interest rates are much lower for federal student loans than they are for private loans, and are fixed, something that is crucial.
Beyond that, the federal government has made it possible to pay back these loans in a multitude of ways, not the least of which would be based upon income made after one’s education. Another huge advantage is that they do not need to be paid back until after you are done with school.
Federal student loans continue to be one of the favorite ways to pay for college, and certainly one of the cheapest. There are a multitude of options to choose from, and this is probably one of the most flexible credit markets that you will ever be involved in.
Subsidized and Unsubsidized
Federal student loans can either be unsubsidized or subsidized. A subsidized student loan means that the US government will pay the interest for your loans while you are in school, as long as you are taking at least the minimum to be considered a “half time student.” This means that interest does not get added to the loan until after you are done with school, saving you a considerable amount of money.
Unsubsidized loans mean that the interest will accrue while you are in school. There are some federal loans that are unsubsidized, but you are not forced to pay anything while you are in school. However, it is a better idea to pay that interest than to let it build up. All things being equal though, most of your loans will probably be subsidized.
Federal student loans have a typical repayment schedule of 10 years, although that can be changed. Keep in mind that the lower monthly payment, with a longer time frame, means that you will pay more in the end, but by default, the program is set for you to have repaid the school loan a decade after you are done.
You can switch repayment plans without penalty but be prepared to fill out some paperwork. There are a significant number of different programs, so under most circumstances, you should find a workable solution for repayments.
There are so many different options that a certain amount of work should be put in to understand what works out best for you. However, there are phone centers that you can call that will walk you through what your payments should be, and the various differences to your budget, on a per month basis.
There are also things such as forbearance, which allows you to step away from paying the loan for a short amount of time. This gives you a temporary helping hand to get through financial hardships.
Beyond that, there are also deferments, and public service loan forgiveness programs, which can significantly shorten your payment time or even eliminate it if you are in a situation where you can work through the program.
One example are medical workers choosing to work in poor rural counties in areas such as Appalachia. Quite often people will do that for a couple of years to either shorten the loan or wipe it out completely.
This Debt Doesn’t Go Away
The one downside to federal student loans is that bad debt never goes away. In other words, unlike many other loans, if you default on this debt, it stays on your credit report forever. While your credit cards will be wiped out after seven years, student loans are forever.
Beyond that, the IRS can and will take money out of your tax returns to make payments towards your debt. While the terms are quite generous for students, the reality is that being in default with the student loan is about as toxic as it gets when speaking of your credit health.
It is because of this that you need to keep your eyes open and be aware that there are many alternatives. The government makes it as easy as possible to pay off student loans,but at the end of the day, it is going to cost a certain amount of money. Know your rights, but, assure you pay attention to your responsibilities as they are crucial.