With the exponentially rising cost of obtaining a higher education, more and more students are unable to achieve this goal purely with their out-of-pocket income. This means a larger portion of students are having to obtain student loans to supplement the amount of money they can allocate to attending a postsecondary school. These loans, although usually completely necessary, can cause a great deal of hardship for students who struggle to pay back their debt. This resource guide will walk you through the differences in different types of student loans and the steps you can towards and get student loan forgiveness.
Kenneth Williams is an author and higher education researcher. His work has been featured on many blogs and websites involving college reviews and guides for parents and college students. Born in Atlanta, Georgia, Kenneth spends much of his time researching how to assist students achieve all their education goals, while keeping their student debt to a minimum. He is a firm believer that education costs are entirely too high, and students should take advantage of what they can to not have crippling debt.
A student loan is a completely different beast in comparison to student grants or student scholarships. A grant or scholarship is money awarded to students usually on based on a merit system or a student’s needs, and they do not have to be paid back. A student loan, on the other hand, is usually given out on non-merit based situations and has to be repaid after a set time; this time is usually after the student would graduate from their school.
There are many different kinds of students loans that one might apply for:
There are many different benefits of obtaining a federal student loan over a private student loan, however you might need to take out a small private loan based on your situation. We will go over this option later in the guide.
Check Your Facts: Americans owe more in student loan debt than they do in credit card and auto loan debt combined.
As detailed in the previous section, there are a couple of different student loan options out there. In this section we are going to give each loan a closer look as to what exactly they are, what benefits they offer and what cons each might have.
The Stafford Loan is a loan offered by schools. These loans are offered to eligible students and have a low, fixed interest rate. What this means is for the entire life of the loan, the interest rate on it will never change. What your offered interest rate stays the same until it’s paid off. This can be very appealing for many students as the interest rate is almost always more favorable than the interest rate on many other student loans. However, because this loan is offered by schools, your school might not be a participant in this program and the school is the one that determines the maximum your loan can be, but your loan total still cannot exceed your financial need.
The Stafford Loan has two different kinds of loans offered:
The Direct Subsidized Stafford Loan is a loan with a fixed interest rate of 6.8% or lower, the federal government pays your interest for you while you’re in school and all you are responsible for is for paying the principal loan amount and any interest that accrues after you’ve completed school.
Due to all of this, Direct Subsidized Stafford Loans are a very favorable and popular option for many students. However, due to the popularity and favorable loan terms, a Direct Subsidized loan is a lot more stringent in who they will offer the loan to. The loan is only available to graduate and undergraduate students within a financial-need bracket, as determined by your school or university.
The Direct Unsubsidized Stafford Loan also has a fixed interest rate of 6.8% or lower, however the federal government doesn’t pay the interest on this loan while you’re in school. Most students choose to defer their payments on this loan until they graduate, however this means they are responsible for the principal loan, the interest that has already accrued and all future interest accrual.
The Direct Unsubsidized loan has no need-based requirements and is available to any student that wishes to take out a loan through this program.
Perkins Loans are federal loans granted to graduate and undergraduate students with exceptional financial needs. These loans are always subsidized–meaning you won’t pay or accrue any interest for the duration of your time in school–and have a fixed interest rate of 5% after you graduate. These loans are generally repaid over a duration of ten years.
Perkins Loans are generally for higher amounts and have more favorable student loan forgiveness requirements, which we will touch on later.
PLUS Loans are offered to two different kinds of parties, parents of dependent undergraduate students and graduate students. These are known as Parent PLUS Loans and Student PLUS Loans respectively. A PLUS Loan is funded directly by the federal government, however, unlike traditional student loans, there is no maximum loan limit placed on these loans and they can be used to cover any costs not covered by other student aid. These loans have a fixed 7.1% interest rate.
For Stafford loans, Perkins loans and PLUS loans, the applicant must fill out a Free Application for Federal Student Aid (FAFSA) form to see their eligibility.
Filling Out the FAFSA
What Happens Next?
Due to a high demand for people in the health professions and the higher than average debt these students will incur, there’s loans available for specific areas of study in the health field.
There are four main loans available for those trying to enter this sector of study:
This loan is designated for certain health professionals that come from a disadvantaged background. This loan defines a disadvantaged background as any background that would inhibit a student’s ability to learn, and subsequently enroll, into medical studies. A disadvantaged background would also include financially-needy students whose family does not meet certain annual income criteria.
In order to be eligible for this loan, aside from being from a disadvantaged background, a student also has to be pursuing a degree in one of the following fields:
● Allopathic Medicine;
● Osteopathic Medicine;
● Veterinary Medicine
A Health Professions Student Loan is a long-term, low interest rate loans offered to students seeking a degree in specific areas of health profession studies.
Students seeking a degree in the following areas are eligible:
● Veterinary Medicine
Primary Care Loans are loans offered to first- and second-year students at the standard loan amount which is capped at the cost of attendance and living costs. Third- and fourth-year students can obtain slightly higher loan amounts.
This loan type requires recipients to complete a residency program within four years of graduation, and requires you to practice primary care for ten years (including your residency time) or until the loan is repaid, whichever comes first.
The primary care fields this loan is eligible for are:
● Allopathic Medicine;
● Osteopathic Medicine
With some specialized fields also covered:
● Adolescent Medicine;
● Clinical Preventative Medicine;
● Public Health;
● Sports Medicine
Loans through this program are available to undergraduate and graduate nursing students that are enrolled at least half-time. The grace period for these loans is nine months, which is shorter than with the rest of the health student loans. However, it’s consistent with the other loans in that this type of loan has a fixed interest rate of 5 percent after the grace period ends.
With private loans money is lent to borrowers by private institutions such as banks, credit unions and state agencies. A private loan can allow a borrower to obtain higher loan amounts, but this loan path has more cons than the other kinds of loans available to students. Each private institution has their own rules and regulations on how and when the money is lent and how and when the debt must be paid back. These loans are never subsidized–meaning you will be responsible for the interest and principal even while you’re in school–and generally have a higher interest rate than the other listed loans. Private loans base the interest rate on your credit score, so having a lower credit score will mean owing more money back. And the interest rate on private loans is non-tax deductible. Another key con is that private institutions almost never offer loan forgiveness or income-based payment plans.
Check Your Facts: According to a recent report by Barclays, 15.5% of outstanding student loan balances are held by Americans ages 50 to 59, and 4.2% are held by those 60 and older due to not having any access to debt forgiveness programs at the time of graduation.
Now that you understand what kinds of loans are available out there, we will take a look at what you can do if you’re unable to repay these loans back when the time comes. There are a couple of different options out there that will either get your loan forgiven completely or partially if possible. For loans that can only be forgiven for the partial debt amount–or can’t be forgiven at all–we will take a look at some steps you can take to try and make your remaining debt more manageable. We will first give you some insight on what exactly student loan forgiveness is, and how you can utilize it to have a debt-free education.
Check Your Facts: The price tag of an average student’s loan debt has risen to $33,000 in recent years. That’s a lot to expect students to repay.
Student loan forgiveness is exactly what it sounds like. It’s terms set in a loan agreement that allow, under various circumstances, for your loan to be forgiven if you’re unable to pay it.
Most of the time a student loan can only be forgiven under extreme circumstances that are beyond your control. Some of the scenarios include:
● Your school closing;
● Your school defrauding you;
● Death discharge;
● Total and Permanent Disability Discharge (TPD Discharge)
Obviously many of these are not preferable means to get a discharge of a loan, however there are some things that you can do to get student loan forgiveness.