Different Types of Student Loans After You Graduate, Leave School or Drop Below Half-time Enrollment
"Different Types of Student Loans After You Graduate, Leave School or Drop Below Half-time Enrollment" submitted by SchoolGrantsfor Editorial Team and last updated on Saturday 7th January 2012
Student loans are a form of financial aid that must be repaid, usually after you leave school. The federal government offers both subsidized and unsubsidized loans. The federal government pays the interest on subsidized loans while you are enrolled at least half time. For unsubsidized loans, you are responsible for paying the interest during enrollment.
Federal law requires that new federal student loans whose first disbursement is after June 30, 2010, must come from the William D. Ford Direct Loan Program. Direct Loans are funded directly by the federal government. Formerly, schools could choose to participate in the Direct Loan Program or Federal Family Education Loan Program, under which loans were funded by private lenders. The following describes terms for new Direct Loans.
1. Subsidized Stafford loans
Subsidized Stafford loans are based on financial need. The federal government pays the interest that accumulates on the loan while you're in school; during the grace period before repayment begins; and during periods of approved deferment. If you have a subsidized Stafford, you begin monthly payments on the principal and interest six months after you graduate, drop below half time, or withdraw from school. For loans taken out prior to June 30, 2006 the interest rate may change each year but may not exceed 8.25 percent. Beginning July 1, 2006 the interest rate on new loans will be fixed at 6.8 percent.
2. Unsubsidized Stafford loans
Unsubsidized Stafford loans are available to all qualified students, regardless of their families' incomes or financial need. If you have an unsubsidized Stafford, you are responsible for all the interest that accrues on the loan. Interest begins accumulating on the date the check is issued from the lender, but interest payments can be deferred. It's to your advantage to pay the interest while you're in school; this way, you will begin repayment on a lower principal when you leave school. Up to June 30, 2006 the interest rate may change each year but may not exceed 8.25 percent. As from July 1, 2006 the interest rate on new loans will be fixed at 6.8 percent.
Also see: Stafford Loan Limits
3. PLUS Loans for Graduate and Professional Students
- As a graduate or professional student, you may take out a PLUS loan for your education when you have reached the annual borrowing limits for both federal subsidized and unsubsidized Stafford loans.
- You may borrow up to the total cost of your education, less the amount of your federal Stafford loans or other financial aid you receive.
- You must be a U.S. citizen or an eligible non-citizen, and have a valid Social Security number
- You must not be in default on a federal loan, not be liable for a grant or federal Perkins loan overpayment, and
- Not have an adverse credit history.
- You may borrow up to the total cost of your education, less the amount of your Federal Stafford loans and any other financial aid received. If you qualify for the Graduate PLUS loan the interest rate is fixed at 8.5 percent-and begins to accrue the day funds are released. Repayment commences within 60 days after the loan has been fully disbursed. Students who are enrolled in school at least half time are eligible for an in-school deferment. Once a Graduate PLUS loan borrower begins repayment, they can expect their monthly payments to be $12.40 per month for every thousand dollars they borrow.
4. Federal Perkins loans
Federal Perkins loans are very low-interest loans (5%) made through participating schools for students with financial need. You'll pay no interest while you're enrolled in school at least half time, and payments begin nine months after you graduate, leave school, or drop below half-time enrollment. Depending on the size of the loan, you'll have up to 10 years to repay.
5. Private Loans:
Many banks, savings and loan associations, and credit unions offer a number of private loans for those students who feel that they need additional aid to attend college. These loans are based on creditworthiness, not income limitations, and may require a co-signer. The interest rate is higher than that of a Stafford loan, usually prime rate or above. In most cases the amount of the loan may not exceed the cost of attendance minus other financial aid. These loans, due to their higher interest rate, should be considered as a last resort in funding an education. Additional information may be found in the alternative loan tip sheet: Private Education Loan and Its Repayment Terms and Conditions
6. Health Professions Student Loans (HPSL)
Health Professions Student Loans (HPSL) are long-term (not less than 10 years or more than 25 years), low-interest-rate (5%) loans for full-time, financially needy students pursuing a degree in dentistry, optometry, pharmacology, podiatric medicine, or veterinary medicine.
There is a 12-month grace period. The minimum monthly payment is $40 per month for loans made on or after November 13, 1998. The minimum monthly payment for loans made prior to November 13, 1998, is $15. HPSL may be included in a consolidation loan, but the inclusion of these loans is optional on the part of the lender.
7. Primary Care Loan (PCL)
If you have a Primary Care Loan (PCL), you should enter information in this calculator for this loan as an HPSL loan type. Primary Care Loans are long-term (not less than 10 years or more than 25 years), low-interest-rate (5%) loans for full-time, financially needy students pursuing a degree in allopathic or osteopathic medicine. Medical students receiving a PCL must agree to (a) enter and complete residency training in primary care within four years after graduation and (b) practice in primary care for the life of the loan.
There is a 12-month grace period. The minimum monthly payment for loans made on or after November 13, 1998, is $40 per month. The minimum monthly payment for loans made before November 13, 1998, is $15 per month. Primary Care Loans may not be consolidated.
8. Loans for Disadvantaged Students (LDS)
If you have a Loans for Disadvantaged Students (LDS), you should enter information in this calculator for this loan as an HPSL loan type. Loans for Disadvantaged Students are long-term (not less than 10 years or more than 25 years), low-interest-rate (5%) loans for full-time, financially needy students from disadvantaged backgrounds. Students must exhibit "exceptional financial need" to qualify. The loans are to pursue a degree in allopathic medicine, osteopathic medicine, dentistry, optometry, podiatric medicine, pharmacy, or veterinary medicine.
There is a 12-month grace period. The minimum monthly payment is $40 per month for loans made on or after November 13, 1998. The minimum monthly payment for loans made prior to November 13, 1998, is $15.
LDS may be included in a consolidation loan, but the inclusion of these loans is optional on the part of the lender.
9. Nursing Student Loan (NSL)
If you have a Nursing Student Loan (NSL), you should enter information in this calculator for this loan as a Perkins loan type with a minimum monthly payment of $40 per month. The Nursing Student Loan program provides long-term, low-interest-rate (5%) loans to full-time and half-time financially needy students pursuing a course of study leading to a diploma, associate, baccalaureate or graduate degree in nursing.
The first monthly payment of principal and interest will be due (9) nine months from the time the student ceases to be at least a half-time regular student. Amounts borrowed must be repaid within 10 years after the date on which repayment begins, unless that period is shortened or extended by specific provisions of the promissory note.
The minimum monthly payment is $40 per month for loans made on or after November 13, 1998. The minimum monthly payment for loans made prior to November 13, 1998, is $15. The maximum annual loan amount is $3,500.
NSL may be included in a consolidation loan, but the inclusion of these loans is optional on the part of the lender.
10. Health Education Assistance Loans
Health Education Assistance Loans are no longer being offered, but the HEAL refinancing program can offer current holders of HEAL loans substantial savings in monthly payments and total loan costs. HEAL refinancing lenders may offer you substantially lower interest rates than those of your current loans, and there is no cost to refinance. Interest rates are variable and are reset quarterly.
HEAL loans may be included in a consolidation loan, but the inclusion of these loans is optional on the part of the lender. If you have a HEAL loan, you should enter the information as an alternative loan type. You will need to provide the interest rate on your loan.
If your loans are with the same lender, your monthly payments on Stafford loans of similar type may be combined for purposes of repayment. Not only will you receive a single statement, but this may also lower your monthly payment. However, if you only pay the minimum, you will increase the total payback on your loan. Loan combination example: The minimum payment on a Stafford loan is currently set at $50. Therefore, if you have a loan for $3500, your monthly payment will be $50, not $40.28 as it would be with the standard 10-year repayment plan. With loan combination, the lender combines the principal of like Stafford loan types. Therefore, the minimum payment on two $3500 ($7000 total) loans will be $80.56, not $100 ($50*2).
In the Loan Reality Check section, guidance is given on what loans should be paid down or paid off first. A list of the three loans is given. The money-saving options are applied to these loans.
Campus-based loans are loans offered by your school. At some schools, these loans offer interest rates and repayment terms that are similar to the Perkins loan program. If you have or are being offered a campus-based loan, you should enter the information as a Perkins loan type if the interest rate and repayment period are similar or as an alternative loan so you can enter an accurate interest rate for your loan.
What are the current interest rates?
Direct Subsidized Loans:
- Undergraduate students: If the first disbursement of your subsidized loan is between July 1, 2010 and June 30, 2011, the interest rate on your loan is fixed at 4.5%. The interest rate on subsidized loans first disbursed to undergraduate students between July 1, 2011 and June 30, 2012 will be fixed at 3.4%.
- Graduate and professional degree students: The interest rate is fixed at 6.8%.
Direct Unsubsidized Loans:
- The interest rate is fixed at 6.8% for all borrowers (undergraduate and graduate).
Download Latest Interest Rates for Stafford and PLUS Loans In the Direct loan and Federal family education loan programs Effective July 1, 2010 (Fixed Rates for Loans First Disbursed on or After July 1, 2006).
You may also find useful:
- Official Information for Financial Aid Professionals (IFAP): Consolidates guidance, resources, and information related to the federal student aid. Visit: IFAP
- EdWise Student Loan Calculator: Edwise online financial planning guide for your college education. Visit: EDWISE Online Financial Planning Guide