Friday, April 26, 2013

Loan Literacy

Alex Newby, Marketing Intern

As many of us are looking forward to graduation and our journey ahead, we’re also dreading paying back our student loans. The stress of figuring out how to pay back your student loans can be scary. We’ve compiled a list of common loan lingo and some resources to help get you started.



Exit Counseling - If you graduate, withdraw or drop below half-time registration status, and you have borrowed a Federal Direct, Health Professions, Perkins, or Institutional student loan, you must complete the Exit Loan Counseling requirement. This is an opportunity for your lender to remind you of your rights and responsibilities as a student loan borrower. In turn, you must provide your lender with certain information about your plans after you leave school (for example, your current address, your expected employer, two personal references, etc.). 
Completing the exit requirement is only one step in keeping your loans in good standing. Remember that loan indebtedness is reported to credit agencies. Until your loan is paid in full, you should continue to communicate with your lender regarding any changes in your address, school enrollment status or questions about making repayment. 

Lender - The lender is the organization or group that loaned you the money initially. The lender can be a bank, a credit union, government, or any other lending institution.

Loan Holder - The Loan Holder is the organization or entity that “owns” the loan now. Since many banks or credit unions sell loans, the current Loan Holder is who your payments are due to. Maybe give an example.

Interest - Interest is the charges accrued for using borrowed money. Different loans have different interest rates depending on the date of disbursement and the type of loan. To find out more about interest and how it’s calculated, you can visit http://studentaid.ed.gov/types/loans/interest-rates.

Grace Period – The six -month period after you graduate, leave school, or drop below half-time enrollment, during which you are not yet required to make payments. Most people suggest using the Grace Period as a preparation time. Getting a stable job, creating a budget, and organizing your finances are all good ideas. Once the grace period ends, you’ll start receiving statements and having to make payments. However, you do not have to use your grace period. If you are able to, you can start making payments right away to avoid any additional interest (see below).

Subsidized Loans - Subsidized loans are loans that don’t accrue interest while you’re in school, during the grace period, or during deferment (see below) periods. These loans typically come from the federal government.

Unsubsidized Loans - Unsubsidized loans are loans that build interest from the date that you first receive it. If you took out a loan freshman year, you’ll be required to pay the interest that the loan has acquired since then, plus the original loan amount.  These loans typically come from private lenders.

PLUS Loans - PLUS Loans are offered to parents of students enrolled at least half time in eligible programs at participating institutions.

Repayment Plan - A Repayment Plan is a plan that you select to help you pay back your loans, dictating the amount you pay towards your loan each month. The repayment plan you choose can be one that best fits your situation or financial needs. According to the Department of Education, you generally will have 10 to 25 years to pay back your student loans, depending on which plan you choose, and you are always able to switch plans if your financial situation changes.

Repayment Incentive - Some loan programs also offer incentives for students or borrowers that pay back their loans on time or according to certain guidelines. Check with your lender for these options.

Deferment - A period of time in which repayment of the principal balance of your loan is temporarily postponed if you meet certain requirements. These requirements can be found here: http://studentaid.ed.gov/repay-loans/deferment-forbearance. You are not charged interest on subsidized loans during deferment. Interest will continue to be charged on your unsubsidized loans and PLUS loans.

Forbearance - Like deferment, forbearance is an option given to borrowers who are temporarily unable to meet the requirements of their monthly payment. Forbearance allows you to lower your monthly payment or temporarily postpone the payments for a specific amount of time. There is also a list of criteria for borrowers interested in forbearance options. Interest will continue to be charged on your subsidized, unsubsidized and PLUS loans.

Default - Default is the failure to repay your loan according to the terms of the promissory note that you signed when you first received your loan. A loan will default after 270 days of non-payment. Your lender is required to report the default to at least one national credit bureau.

Although student loans can be a scary part of the college journey, there are millions of students every year that start the process of paying off their education. The thing to remember is that paying back your student loans is not avoidable. While you may not always receive a statement or bill notice, you are still responsible for keeping up with your loan and your payments, Ignoring payments or paying late could get you into financial trouble and affect your credit score.  Even if you were to file for bankruptcy you wouldn’t be exempt from paying back your student loans, so do yourself a favor and keep up with them from the beginning. 

For more information, students can call the UK Financial Aid Office at (859) 257-3172. For loan specific questions, contact your lender or loan holder.  

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