What you need to know about student loans for college

The fall semester of college is just around the corner and applying for student loans may be on your to-do list. But in the flurry of filing paperwork are you thinking about how the student loan repayment will affect you in the future? Probably not.

It's important to read the fine print when filing for student loans. (Credit: Collegescholarships.org)

It’s important to read the fine print when filing for student loans. (Credit: Collegescholarships.org)

By the time you graduate your student loan balance may be pretty large. It’s going to take a student loan calculator to help you figure out what you can afford to pay and how long to pay off the loan. Here are a few things you need to know about student loans and how it affects your life.

Student loans repayment facts

While banks in the U.S. get to borrow money from the Fed at 1 percent interest, did you know that students currently have to pay 6.8 percent interest on their loans? According to De Anna Sanders in her March 18, 2014, post for Mic.com, “7 Startling Facts That College Graduates Know All Too Well,” that rate could go as high as 8.25 percent for undergraduates and 9.5 percent for graduates. Sanders also revealed more serious information about student loans.

  • About two-thirds of college students will graduate with student loans to repay. Most loans are taken out by students at for-profit colleges. The average student graduating in 2012 owed $29,400 in debt.
  • There are 40 million Americans currently holding about $1 trillion in outstanding student loan debt. “This amounts to more students in debt than the number of people in more than 200 countries. Moreover, the debt has already quadrupled from $250 billion in 2004, exceeding both automobile and credit card debt in the United States, and is growing at a rate of $2,853.88 per second,” Sanders said.

Is student aid worth it?

Sure, having to repay a lot of debt is going to keep you from splurging on other things in your life but it might still be worth it. At least this is the opinion of the Brookings Institute, which has analyzed two decades worth of data on American household finances.

Fred Dews and Elina Saxena covered recent findings from Brookings in a July 8, 2014, article for Brookings.edu, “These Facts about Student Loans Might Surprise You.”

Recent studies by scholars at Brookings show that student loan balances exceeded $1.2 trillion as of 2013. The median debt held by those with loans rose from about $5,200 in 1989 to $13,400 in 2010.

The scholars said that the growth in student loan debt is offset by the higher wages that graduates can earn in the future.

Student loan grace periods

Different loans have different interest rates and terms. Typically you have to start repaying your student loans after you drop below half-time status. So make sure that you know how your loan defines half-time status, as this could be different for undergrads than it is for grad students.

Once you drop below half-time status or leave school altogether the clock starts ticking on repayment. Federal loans generally have a six-month grace period during which you don’t have to make payments. But there is variation among the different types of Federal student aid.

In her May 28, 2014, article for USNews.com, “6 Little-Known Facts About Student Loan Grace Periods,” Betsy Mayotte explained how the grace period works for federal student loans.

Grace periods tend to go into effect any time that you drop below half-time status. If you plan on returning to full-time status in the future, you’d better check with financial aid to find out how this will affect your loans. Depending on the type of loan and how long before you return to full-time, you may still have the full six months grace period available to you.

The different types of student loans are:

  • Federal Stafford loans: six month grace period
  • Perkins loan: nine months
  • Graduate PLUS: similar grace period ask financial aid for details
  • Parent PLUS: borrowers can request a grace period, it’s not automatic
  • Federal direct consolidation: no option for a grace period
  • Private loans: most do not have a grace period

According to Mayotte, “Because of all this, it’s common for some borrowers – especially those who have taken a semester off here and there – to have some loans in grace status while others are due for payment once they graduate.”

It’s a good idea to learn all you can about your student loans and how they will affect you financially. Be sure to check out StudentAid.Ed.gov for more information.

What fact about student loans surprises you the most? Tell us your thoughts about student financial aid in the comments.

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