Student Loans

Does the thought of student loans make you cringe? That is perfectly understandable, but ignoring and hiding from your student loans will only make your life much harder in the long run. Instead, read the tips below to learn more about student loans so that you can control and limit your student loan debt rather than allow it to control you!

Download the Taking Out a Student Loan Handout
Download the Student Loan Repayment Handout
 
Student loans are loans provided by the federal government, the state government, private lenders, or your school to help you afford the costs of attending college.  Frequently, student loans can be repaid after graduation, but that varies by loan type and based upon your enrollment. Some student loans accrue interest while you are enrolled in school while others do not. Visit financialaid.tamu.edu to learn more about the different types of student loans available.
Student Loan Terminology
Principal – Amount borrowed.   
Interest Rate – The annual percentage charged to the student for issuing the loan.
Interest – Money charged to a borrower for receiving the student loan.
Capitalized Interest – The accumulated interest added to the borrower’s outstanding principal.
Grace Period – Period of time after graduation, leaving school or dropping below half-time attendance during which no loan payments are required.
Servicer – Collects loan payments and manages the borrowers’ repayment status
Deferment – Temporarily postpones monthly federal student loan payments. Subsidized loans do not accrue interest at this time.
Forbearance – Temporarily reduces, extends or postpones monthly federal student loan payments. Interest will accrue on loans. The forbearance option is usually available for borrowers who are not eligible for deferment.
Delinquency – The initial status assigned to a borrower who is late on making loan payments. Delinquency can negatively impact a student’s credit score.
Default – Unpaid delinquent accounts eventually go into default status. Credit scores plummet for borrowers with defaulted loans. Defaulted loans are turned over to collectors.
Are you considering using student loans to help pay for some of your college costs? Determining whether you really need a student loan, and how much student loan funds you need, are critical decisions that should be thought through carefully. Although the university provides students who submit a Free Application for Federal Student Aid (FAFSA) with an Estimated Cost of Attendance, this figure is just an estimate, and you need to analyze your actual expenses to accurately determine if you need a student loan (and if so, how much student loan dollars you truly need to cover your costs). Use all free funding options (grants, scholarships, fellowships, etc.) and consider student employment before immediately leaping to taking out a student loan.
 
Before accepting a student loan, remember the following:
  • Borrow only as much money as you need
    • Establish a budget to determine how much you need
    • Borrow money to pay for your needs, not your wants
  • Federal loans are usually preferable to alternative loans
  • Even if you don’t graduate, you are still required to repay your student loans 

If you are certain that it is necessary for you to take out a student loan to afford to attend college, then the first step in doing so is to submit your FAFSA. Learn more about how to do so on financialaid.tamu.edu. Once you have submitted your FAFSA, the university will award you whatever financial aid funds you are eligible for (including student loans) on the Financial Aid Portal (on howdy.tamu.edu). Follow the steps in the portal to apply for and receive your student loans.

At that time, you can also assess whether or not the funds that have been offered to you are enough to cover the costs of attending college. If you need help making this decision, do not hesitate to contact us at the ME Center.

With student loan debt at an all-time high ($1.3 trillion nationally), the anxiety about paying off that debt looms over students through college and becomes a reality upon graduation. The best way to minimize the amount of student loan debt you will have outstanding at graduation is to monitor your student loan debt every semester starting from when you first enter college! Doing so will cause you to think twice before taking out more student loan debt to buy things that you really don’t want or need while in college.
 
The National Student Loan Data System (NSLDS) allows students to monitor all of their federal student loans easily online. It provides the following information for each federal student loan you borrow:
  • The dollar amount you borrowed.
  • The interest rate associated with the loan.
  • The interest that has already accrued on the loan (if any).
  • The loan servicer’s contact information (for when you need to speak to them about your repayment options).
  • The status of the loan (whether it is in repayment, is delinquent, is in default, etc.).  
Many student loan programs allow students to postpone repayment until after graduation, but postponing repayment may not always be the best choice as your unsubsidized loans will continue to grow during college due to accruing interest. This in turn will lead to higher monthly loan payments after graduation. If you can afford it, consider paying off the accruing interest on your student loans while you are in school as it could save you a lot of money in the long run.
How much could you save?
The graph below shows the difference in the total amount you could repay on a $6,000 Federal Unsubsidized Loan if you pay the interest as it accrues compared to if you let the interest accrue over four years.

 

  Pay interest during college Do not pay interest during college
Principal $6,000.00 $6,000.00
Accrued Interest (6.8%) $0.00 $1,632.00
Loan Balance to be repaid $6,000.00 $7,632.00
Monthly Payment $69.05 $87.83
Total Interest paid on loan $2,285.69 $2,907.48

In this example, paying your interest during college would reduce your monthly student loan payment by $18 over a 10 year repayment term ($621 in total savings).  
How to pay student loan interest while in school
There are no prepayment penalties on federal and private student loans, so you can make interest-only payments on any student loan. When making a payment, make sure to notify your lender or servicer that your payments should be applied to the accrued interest on the loan. If you have both subsidized and unsubsidized student loans, specify that the extra payment should be applied to unsubsidized loans.

Paying off your student loan interest during college will also allow you to establish a good repayment relationship with your student loan servicers early on and will help you to form good repayment habits.

Read How Paying Student Loan Interest in College Pays Off to learn more about how tackling your student loan deb can impact your future finances. 
Is it nearly time to start repaying your student loans? Are you thinking about fleeing the country in order to avoid having to do so? While your feelings are understandable, the ME Center instead recommends that you focus your energy on learning about your student loans and how best to repay them so that you can take control of your student loans so that they don’t control your life.
Federal Student Loan Repayment Checklist
Use the below federal student loan repayment checklist to ensure that you cover all of your bases:
  • Access NSLDS to determine which federal student loans you have outstanding and to get your servicer(s) contact information.
  • Access Federal Student Aid, create a profile, review your Repayment Options, and use the Repayment Estimator to estimate your monthly federal student loan payment amount.  
  • Call your servicer(s) to:
    • Ensure your contact information is up to date.
    • Discuss your repayment options.
    • Ask about setting up automatic payments from your checking account.
    • Confirm that all required repayment plan documents have been received.
  • If you begin having trouble making your required monthly student loan payments, call your servicer(s) and discuss:
    • Deferment or forbearance (to postpone repayment).
    • Modifying your repayment plan to work for you. 
Federal Student Loan Repayment Plans
The federal government provides a variety of federal student loan repayment plans. Learn about them below and then work with your servicer(s) to select a repayment plan that works for you!

Standard Repayment Plan

  • Fixed monthly payments of at least $50 for each loan.
  • Up to a 10-year repayment period.

Graduated Repayment Plan

  • Monthly payments start low and increase (usually every 2 years).
  • Up to a 10-year repayment period.

Extended Repayment Plan

  • Limited to students owing more than $30,000.
  • Decreases the monthly payment, but increases the total amount of interest paid.
  • Up to a 25-year repayment period.

Income-Based Repayment Plan

  • Monthly payment is based upon borrower’s income, family size, and state of residence.
  • Monthly payment will never be more than the Standard Repayment Plan.
  • 25-year forgiveness provision.

Pay As You Earn (PAYE) Repayment Plan

  • Monthly payment is based upon borrower’s income, family size, and state of residence.
  • Eligibility is dependent upon when loans were taken out.
  • Monthly payment will never be more than the Standard Repayment Plan.
  • 20-year forgiveness provision.

Revised Pay As You Earn (REPAYE) Repayment Plan

  • Monthly payment is based upon borrower’s income, family size, and state of residence.
  • Spouse’s income will also normally be considered regardless of tax filing status.
  • Monthly payment can be more than the Standard Repayment Plan.
  • 20-year (undergraduate loans) or 25-year (graduate loans) forgiveness provision.

Income-Contingent Repayment Plan

  • Monthly payment is based upon borrower’s income, family size, and state of residence.
  • Limited to Direct Loan borrowers.
  • 25-year forgiveness provision.

Income-Sensitive Repayment Plan

  • Limited to FFEL Loan borrowers.
  • Monthly payment adjusts based upon borrower’s income. 
Consolidation
Consolidation is the process through the federal government which allows students to combine multiple student loans into a single student loan. Consolidated student loans have fixed interest rates (which are weighted averages of the individual student loans that were consolidated) and typically have a repayment period between 10 and 30 years.
 
Students can begin the process of consolidation by applying for consolidation on studentloans.ed.gov.
 
Advantages:
  • Single monthly loan payment.
  • Fixed interest rate.
  • Lower monthly payment (if the repayment period is extended). 
Disadvantages
  • An extended repayment period will increase total interest paid.
  • May lose part or all of the grace period of the original loans.
  • May lose loan forgiveness provisions of the original loans.
Review the Loan Consolidation page of studentaid.ed.gov to help determine if consolidating your student loans is the right decision for you.
Student Loan Forgiveness Programs
Below are a few of the forgiveness programs available to help reduce your student loan repayment burden.

Teacher Loan Forgiveness
Total and Permanent Disability Discharge
Death Discharge
Public Service Loan Forgiveness
How to Pay Off Student Loans Faster 
Graduating is an exciting time, but with that comes the responsibility of paying back student loans. What students don’t realize is they can be out from under that debt in much less than ten years. Student loans do not have prepayment penalties. In months which you can afford it, consider making a second student loan payment directly to principal. Doing so will dramatically reduce the amount of time it will take for you to repay your student loans.
How much can you save in time and money?
The graphs below show how significantly paying extra towards student loans each month can reduce how long it takes you to repay your student loans. The student loan in the example below is a $20,000 unsubsidized loan accruing interest at 6.8% being repaid on the standard 10-year repayment plan.
 
  Paying an Extra $50 a Month Paying an Extra $100 a Month
Principal $20,000.00 $20,000.00
Required Monthly Payment $230.16 $230.16
Extra Monthly Payment $50.00 $100.00
Total Interest Saved on Loan $1,916.64 $3,051.14
Years to Pay Back Loan 7.7 6.2

In this example, making a second monthly payment of $50 each month would allow you to repay your student loan in 7.7 years and would save you $1,916.64 in interest. Making a second monthly payment of $100 each month would allow you to repay your student loan in 6.2 years and would save you $3,051.14 in interest.