Student Loans: 7 Words You Need to Know! Terri Lomax September 28, 2012 8 Comments If you’re like me you were a first generation college student just barely making it to college due to the lack of financial preparation, financial literacy and the big F, FINANCES. I had no clue what the student loan lingo was all about and unfortunately I didn’t educate myself until after graduation, after the loans had piled up and the interest had begun accruing. Take a look at some of the terms below and familiarize yourself with them. Take the time to educate yourself on how to fund your education, loans are not your only option! Looking back, I recall a few classmates who worked 3 and 4 jobs to put themselves through school, others earned academic scholarships that afforded them a full ride, all expenses paid. I wasn’t that lucky, I graduated with mounds of student loan debt. Nevertheless, I’m optimistic. I will pay those loans back and you can too! 1. Direct Subsidized Loans I hate to call a loan “good” but compared to unsubsidized loans, Direct subsidized loans are the “good” loans. They may also be referred to as subsidized loans or “subs.” For a subsidized loan, the U.S. Department of Education pays the interest Your school determines the amount you can borrow, and the amount may not exceed your financial need. Direct Subsidized Loans are available to undergraduate students with financial need (while you’re in school at least half-time, for the first six months after you leave school and during a period of deferment. 2. Direct Unsubsidized Loans Direct Unsubsidized loans are sometimes called unsubsidized loans or simply “unsubs” and are in my opinion evil! Obviously because we are required to pay interest during all periods. Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need. Your school determines the amount you can borrow by considering the cost of attendance and other financial aid you receive. For an unsubsidized loan, you are responsible for paying the interest during all periods. Even while you’re in school! If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the balance of your loan). 3. Default A default is the failure to repay a loan according to the terms agreed to in the promissory note. You may experience serious legal consequences if you default. 4. Deferment A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue for subsidized loans. Unsubsidized loans that are deferred will continue to accrue interest and any accrued unpaid interest will be added to the overall balance of the loan(s) at the end of the deferment period. 5. Forbearance If you can’t make your scheduled loan payments, but don’t qualify for a deferment, your loan servicer may be able to grant you a forbearance. With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans (including all PLUS loans). 6. Grace Period A period of time after borrowers graduate, leave school, or drop below half-time enrollment where they are not required to make payments on their federal student loans. Interest will accrue on subsidized loans made between July 1, 2012 and July 1, 2014, and all unsubsidized loans during grace periods. If the interest is not paid, it will be added to the principal balance of the loan when the repayment period begins. Each loan has only one grace period. These are just a few important terms you should know. The link below has a host of information regarding student loans. The information from this post was found on The U.S. Department of Education’s Federal Student Aid website.
