More terms you need to know to get the most out of your financial aid.
Written by: Lisa Phelps for Student Choice
As soon as you graduate or leave school, each of your loan administrators will notify you about the amount and due dates of your payments. There will be paperwork to go through and some of it might be overwhelming.
We’re here to help! Here are some common terms (and their definitions) you’ll come across as you begin repaying your student loans.
Learn the Student Loan Lingo
The following are some of the most common terms you’ll run across as you work through the loan process for college:
- Credit Score
A number (ranging from 300 – 850) that reflects how well you’ve handled money you’ve borrowed. A damaged or low credit score can affect your ability to qualify for a car, apartment, credit cards or a home loan. And if you do qualify, chances are the interest rate you pay will be high. Being irresponsible with your loans can have a far-reaching and long-lasting result. Many employers check credit scores before they consider hiring you, so ignoring your student loans can affect almost every aspect of your life.
Failure to repay a loan according to the agreed upon terms. Negative consequences may include:
- Legal action taken against you to recover the money.
- Lowered credit score.
- Difficulty borrowing money to buy a car or home.
- Inability to borrow additional money for tuition expenses.
You can wait to make a payment on your Subsidized or Perkins loan without racking up any interest charges. Other types of loans will keep gathering interest charges during the deferment period. The company that gave you the loan will tell you if you’re eligible for a deferment.
- Grace Period
The time you don’t have to worry about making loan payments, typically the six months after you graduate or finish school.
The default repayment option on your federal loans – you have ten years to pay them back.
A great option if you’re not making enough to cover your standard monthly payment. You’ll start at a much lower monthly payment that will increase over the years as your salary (hopefully) increases. Choosing this option can get expensive because of excessive interest costs.
A repayment term of 25 years, which lowers your monthly payment considerably but your interest charges (and the total you’ll have to pay back) are enormous.
- Pay as You Earn
Your monthly payments are based on your income. Again, watch out for what that will do to your total interest costs.
Another term that’s good to understand:
The process of combining one or more loans into a single new loan. If you’ve got several different loans with different interest rates and due dates, keeping track of them and making your payments on time can become a nightmare. In many cases, your smartest, most cost-effective move is to consolidate them into one big loan with one interest rate and one due date.
Student loans may be the first kind of debt you ever have and let’s face it – being in debt can feel overwhelming if you owe thousands of dollars. Be sure to make your payments on time and if you are unable to make them for any reason, talk to the loan administrator to discuss your options. It’s always better to pay something than nothing at all.
For even more terms and helpful information, check out our Glossary of Key Financial Aid Terms, Federal Student Aid’s expansive glossary, and don’t be afraid to ask your financial aid counselor for more information. Stay tuned for more articles about helpful terms to save you money and make your financial aid process a little easier.
If you need assistance getting your finances in order – check out your local credit union – you can find one using our CU Select tool.