10 Student Loan Terms You Should Know
Are you preparing to take out a student loan? It’s important to understand the basics of student loans and key terms associated with them – especially if it’s your first time going through the process. We’ve put together a quick list of student loan terms to help guide you.
We hope this article provides a good starting point and gives you the confidence you need to navigate through various student loan options.
Student Loan Terms You Need to Know
Please note that this is far from an exhaustive list and is completely subjective (and in no particular order). If you come across other terms that you are unfamiliar with during your student loan journey, don’t panic. There’s a lot of good resources out there devoted to student loans.
- Subsidized loan
A federal student loan that the U.S. government pays the interest on while you are in school and during approved deferent (see below) periods. Subsidized loans are based on financial need.
A deferment allows you to temporarily stop making payments on your student loan or temporarily reduce your monthly payment amount for a specified period of time. Subsidized federal student loans do not accrue interest while deferred.
- Unsubsidized loan
A federal student loan that is not based on financial need. You are responsible for paying all accrued interest on unsubsidized loans, including interest that accrues while you are in school, during your grace period, or in deferments.
- Direct PLUS loan
A loan provided by the U.S. Department of Education for graduate/professional students and parents of undergraduate students to help cover education expenses not covered by other financial aid.
- Private Student Loan
Private student loans are offered by private lenders such as credit unions and banks, not the federal government. These loans are not funded or subsidized by the U.S. government and may not offer the full range of borrower protections afforded by federal student loans.
- Origination fee
An upfront fee charged by lenders for processing loans. You should always ask lenders if they charge origination fees and if so, what they are.
- Debt-to-income ratio
This represents your monthly debt payments divided by your gross monthly income. This calculation is sometimes used by lenders to determine your ability to repay a loan.
To apply for a loan made by the U.S. Department of Education, you must complete a Free Application for Federal Student Aid, more commonly known as FAFSA. Schools use info from your FAFSA to determine if you qualify for federal student loans. Even if you don’t qualify for federal student loans, schools often award scholarships and grants based on FAFSA information.
- Standard repayment
The standard repayment schedule for most student loans is 10 years (120 months) unless you arrange a different repayment schedule with your lender. Payments are usually a fixed amount throughout the term of your loan.
- Income-driven repayment plans
Income-driven repayment plans cap your monthly payments at a certain percentage of your monthly discretionary income. As a result, your monthly payments can change if your income or family changes. To stay eligible for income-driven repayment plans you have to submit information about your income and family every year.
Get Private Student Loans through TwinStar
If you’re looking into private student loans, TwinStar can help. We’ve partnered with Sallie Mae to provide you with options to cover your education costs – whether you are an undergraduate student, graduate student, or parent.
Our private student loans feature:
- Competitive rates
- Multiple repayment options
- No origination fees
- No repayment penalty
For more information about our private student loan options, visit our student loans page.
Taking out a student loan is a big decision. Before you choose a loan, it’s crucial to determine how much you’ll owe and how you’ll pay it back. Familiarizing yourself with the types of student loans available, differences between federal and private student loans, and various repayment options can help you make the right decision.
Working with a trusted financial institution like TwinStar can help you navigate the student loan process. We provide the flexibility you need while pursuing your higher education goals. Together, we can help you find a student that best meets your needs.