Comprehensive Guide to Student Loans: Everything You Need to Know

Types of Student Loans


If you are studying in the United States, the several forms of student loans may perplex you. There are several options available. How do you determine which one is the best fit for your needs?

How do the repayment plans operate, and why are there so many of them to choose from?

There’s no reason to give yourself a headache over something little. We have put up a basic, uncomplicated overview of all you need to know about student loans in the US.

Understanding Different Types of Student Loans

There are two primary forms of student loans: federal student loans and private student loans. Federal student loans are the most common type.

The difference between federal and private student loans is that federal student loans originate from the government, but private student loans come from private sources such as banks or financial organizations.

Student Loans From the Federal Government

The United States Department of Education administers federal student loans. They are the biggest supplier of student financial assistance in the United States, with over 13 million students using their services annually.

Direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and direct consolidation loans are the four forms of federal student loans available.

If you are an undergraduate, you may borrow a total of US$12,500 each year in Direct Subsidized Loans and Direct Unsubsidized Loans, up to a maximum of US$12,500 per year.

For graduates, you may borrow up to US$20,500 per year in Direct Unsubsidized loans, and you can use Direct PLUS Loans to pay any extra expenses associated with college attendance.

Are you still confused?

You shouldn’t be concerned since we will go through the various forms of loans in further depth below.

Direct Subsidized Loans

Direct subsidized loans are loans accessible to undergraduate students who can show a significant financial need and their academic performance.

Suppose you are qualified for a direct subsidized loan. In that case, the United States government will pay the interest on the loan while you are in school, and you will not be required to begin repaying the loan (and paying interest) until six months after you complete your studies.

Direct Unsubsidized Loans

Direct unsubsidized loans are accessible to both graduates and students who want to further their education. Students who take up a direct unsubsidized loan will be required to begin paying interest as soon as the institution gets the loan.

On the other hand, students will only be obliged to repay the debt six months after completing their studies.

Even if you opt not to pay interest on your loan while you are in school, the interest will accrue and be added to the total amount of your loan after you graduate.

Direct PLUS Loans

Direct PLUS Loans are a kind of loan that allows you to borrow money without having to go through a bank.

Students pursuing graduate or professional degrees and parents of dependent undergraduate students are eligible to apply for Direct PLUS Loans.

The distinction between direct PLUS loans and any other federal loan is that direct PLUS loans may assist pay for educational expenditures that are not covered by other financial aid, such as housing costs.

The student will be responsible for paying the interest on the loan from the time the institution receives the loan. You’ll begin repaying your Direct PLUS student loan six months after you graduate, quit school, or drop below half-time enrollment status.

This depends on your circumstances.

Direct Consolidation Loans

The ability to merge all of your student loans into a single payment makes it simpler to handle your student loans. Moreover, you will be able to take advantage of the government’s coronavirus student debt relief program.

Instead of making many payments each month, you’ll only have to make one monthly payment.  Switching to a direct consolidation loan will allow you to choose from a variety of various repayment options.

Student Loans From Private Lenders

Private student loans are often substantially more costly than government student loans. Moreover, their interest rates are typically significantly higher as well.

This is partly because they do not affiliate the lender with the government. Moreover, they are allowed to set their own interest rates and repayment conditions. Hence, the interest rate and payback terms will differ depending on which student loan provider you choose.

Private loans are a wonderful choice for students who want to borrow money in addition to their federal student loans. They provide you the choice to borrow just what you need and work with you to choose the most advantageous payback arrangements.

Federal Student Loan: Application Process

To be considered for a federal student loan, you must first complete the Free Application for Federal Student Aid (FAFSA). It will determine if you are eligible for federal grants, work-study programs, or federal loans.

Your institution will give you a financial assistance package based on the findings of your FAFSA. It will include federal student loans as well.

Private Lenders: Application Process

The lender will determine the method by which you apply for a private student loan.

However, in order to be considered for most private loans, you will be required to provide some information about yourself. After that, the lender will do some basic credit checks to see whether you are qualified for the loan.

The lender will then inform you whether or not you are qualified for the loan. If you are, they will make arrangements for transferring the cash.

Repayment Plans for Student Loans

Once a year, students who have federal student loans may alter their repayment plan for free. However, the condition is that the maximum loan term for the new plan is more than the length of time that their loans have already been in repayment.

The attempt to charge students for changing their repayment plans is a prevalent student loan scam. Therefore, all students should be aware of it and be on the lookout for it. Regardless of the kind, and unless otherwise specified, each of these repayment options applies to all federal student loans.

On the other hand, private student loan repayments are totally reliant on the lender. Therefore, you will need to agree on the repayment conditions before taking out your loan.

The following are the primary repayment options for students who have taken out federal student loans:

Standard repayment plans

As soon as you apply for a student loan, you are immediately enrolled in the basic monthly repayment plan. However, you have the option to change plans.

Student debt will be repaid in equal monthly installments over a ten-year period under the normal monthly repayment plan. According to this strategy, you will most likely be able to return your student loan sooner and will pay less interest in the long run.

Graduated repayment plans

Choosing a graduated repayment plan means you will be responsible for repaying your student loan over a ten-year period. However, this repayment program assists in keeping payback expenses low for recent graduates.

In part, this is due to the fact that fresh graduates may have modest beginning incomes. However, they will anticipate seeing their earnings rise over the course of the ten-year payback term.

According to this plan, the amount you’ll be repaying each month will grow every two years to keep up with your (hopefully rising) wage over the long term.

Extended repayment plans

This plan is similar to the progressive repayment plan. The only exception is that you may extend the time period for payback from 10 years to 25 years. This will lower the amount you pay each month while increasing the amount you pay in interest over the course of the loan.

The repayment option is open to anybody who owes more than $30,000 in federal student loans.

Income-based Repayment Plans

There are income-based repayment programs available for federal student loan borrowers that may help you have a portion of your student loan forgiven or paid off.

It is possible to set up four distinct kinds of income-based repayment arrangements:

Pay As You Earn Repayment Plan (PAYE)

Monthly repayments are restricted to 10% of your after-tax income. The remaining debt is erased after 20 years if you continue to make payments.

Revised Pay As You Earn Repayment Plan (REPAYE)

It requires monthly payments equal to 10% of your after-tax income, with any remaining amount canceled after 25 years if no payments are made.

Income-Based Repayment Plan (IBR)

It is a kind of debt repayment plan that is based on your income. Depending on when you acquired your loan, your monthly payments will range from 10 to 15% of your gross income after taxes.

Outstanding sums will be forgiven after 20 or 25 years depending on when you first took out the loan. However, you may be required to pay income tax on the forgiven amount if you live in the United States.

Income-Contingent Repayment Plan (ICR)

If you choose the Income-Contingent Repayment Plan (ICR) for your student loans, your monthly repayments will be 20% of after-tax earnings or a fixed payment over 12 years that will be adjusted to your earnings.

Upon reaching the age of 25 years, the remaining amount will be written off.

Income-sensitive repayment plans

Any borrower who has received a subsidized federal student loan, an unsubsidized federal student loan, a federal PLUS loan, or a federal consolidation loan may be eligible for an income-sensitive repayment plan.

According to this repayment plan, your monthly payments will grow or drop each year in accordance with your yearly income. You will pay for a maximum of 10 years, depending on your income.

Is it possible to get your student debt dismissed?

Yes, but only in the most exceptional of situations. A judge is often the one who grants a student debt discharge. There are a variety of reasons why your student debt may be discharged:

  • Disablement for the rest of one’s life
  • Death
  • Bankruptcy
  • Students’ eligibility has been falsely certified
  • The loan was signed by an unauthorized party at the institution without your knowledge


Student debts are not something to be handled lightly. Student loans, on the other hand, should not be seen as unfavorable – as they are sometimes portrayed. They may be really beneficial in many situations.

These loans assist students in bridging the gap between the amount of money they need to pay for education and their ability to pay.

When students take out too much debt for education, they run into difficulty. Gaining an understanding of them sooner rather than later will assist you in making better borrowing and repayment decisions.

You will be better prepared to make responsible financial choices after graduation rather than making detrimental financial mistakes without understanding the consequences of your actions.

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