In Part 1 of this series we identified answers to get on “up-front” issues when comparing a private versus federal student loan. Today we recommend questions to ask about things that happen after you get your money, but which are nevertheless essential to determining which loan is better for you.
- When must you begin repaying your debt?
Payments aren’t required on federal student loans while you’re enrolled at least half-time and during a “grace period” lasting six months for Federal Direct Loan Program (FDLP) loans and nine months for Federal Perkins loans. Private student loan repayment start dates vary by loan.
Deferment and Forbearance
- Under what conditions may payments be temporarily postponed or reduced?
- What happens to interest that accrues (builds up) during these postponement and reductions?
- Must you pay a fee to get your payments postponed or reduced?
You may temporarily postpone or reduce your monthly loan payments through various deferments and forbearances. Interest doesn’t accrue on FDLP Subsidized and Federal Perkins loans during deferment, but keeps accruing on other federal loans during deferment and all federal loans during forbearance.
The government charges no fees for deferment or forbearance, but some private lenders do — if they offer deferments or forbearances at all.
- May my federal and private college loans be consolidated?
- Does my interest rate change if I consolidate? How much?
- Does consolidating change my repayment period or other terms and conditions?
An FDLP Consolidation loan pays off whatever federal student loans you choose, but not your non-federal debts.
FDLP fixes your consolidation loan interest rate at the weighted average of all the loans it pays off, plus .125%.
You can usually get lower monthly payments on an FDLP Consolidation loan, which get extended repayment periods based on their size:
- How long will you have to fully repay your debt?
- Do you have different repayment options. If so, what are their terms and conditions (monthly payment amounts, etc.)?
The FDLP allows you to choose from seven different repayment plans. The standard plan requires a monthly payment amount sufficient to pay off your debt within 10 years. Four others help ensure you’ll not be overwhelmed by monthly payment amounts by making such amounts a percentage of your Adjusted Gross Income, even if this requires a repayment period longer than 10 years.
Loan Discharge and Forgiveness
- May any portion of your debt be cancelled? If so, under what circumstances?
Most private student loans offer no opportunities for discharge or forgiveness. Federal student loan debts may be discharged or forgiven under various reasons, including Public Service and Teacher Loan Forgiveness.
College Affordability Solutions offers free advice and counsel on college borrowing based on 40 years experience in student financial aid and student loans. Call (512) 366-5354 or email firstname.lastname@example.org for such assistance.