How to Repay Federal Student Loans
Whether you need federal student loans for graduate school or undergraduate school, there are several types of repayment plans available. These include unsubsidized direct loans (unsubsidized DLs), graduated plans, and school-channel loans. These types of plans vary in interest rates and the duration of repayment. These options may be advantageous to some borrowers.
Unsubsidized DL
There are two types of federal student loans, subsidized and unsubsidized. Both types accrue interest, but subsidized loans are only available to undergraduate students with financial need, as determined by the Free Application for Federal Student Aid (FAFSA). An unsubsidized federal student loan does not have any interest or fees during the loan disbursement period. Instead, interest is paid on the loan at a later date.
Unsubsidized federal student loans are the most popular type of federal student loan. These loans do not require repayment until six months after you finish school. This allows students to pay the interest while in school and in between. The only difference between the two types of loans is how interest is applied. With subsidized loans, the interest is paid by the government, while with unsubsidized loans, you are required to repay the principal amount.
Standard plan
The standard federal student loan plan is the most common and effective way to repay your federal student loans. However, you can also choose an alternative repayment plan if the standard one doesn’t meet your needs. The standard repayment plan requires you to make 120 equal monthly payments over a ten-year repayment period.
This plan allows you to pay off your loan more quickly. By doing this, you’ll pay less in total interest over the course of the loan. However, your monthly payments will be higher than if you were on an income-based plan. You can also refinance your loan with a private lender and secure a lower interest rate.
Graduated plan
When choosing a repayment plan for federal student loans, a Graduated Repayment Plan is an option to consider. This type of plan allows you to make payments that gradually increase over a period of time. In most cases, payments on a Graduated Repayment Plan begin at a very low monthly amount and gradually increase to a higher payment every two years. These plans are particularly good for people who expect to earn more money in the future and want to start with low payments.
In a Graduated Plan for Federal Student Loans, you will start making smaller payments and increase them every two years. The monthly payments can range from 50 percent to 150% of the standard repayment plan, depending on the total amount of your loan. You can expect to pay off your loan in ten years or more with this plan. However, if your loan is consolidated, you will be able to extend your repayment period up to 30 years.
School-channel loan
While school-channel federal student loans have lower interest rates, processing time can be longer. In addition, the money goes directly to the school, so it’s important to make sure that the total amount of funds available to you doesn’t exceed the total cost of attendance. Fortunately, there are many options available.
The government has two primary student loan programs: the Direct Subsidized Loan and the Direct Unsubsidized Loan. The former is for undergraduate students with financial need. The latter is available to graduate and professional students without a financial need requirement. While federal government agencies pay interest on the former, students must repay the latter.
