When borrowing money for college or any other further education, many students fund their studies by taking advantage of federal student loans. These loans have a range of conditions such as interest rates, grace periods and conditions during repayment. The specific conditions associated with these student loans depend on the loan package the student is receiving.
Loan Conditions
The conditions set out for federal student loans depends on the type of federal student loan awarded. One of the more common types of student loan, the Stafford loan, is broken down into two types. Subsidized Stafford loans do not accrue interest while in school, during deferment periods and during grace periods. Unsubsidized loans, however, do accrue interest during these times. PLUS loans have similar conditions to unsubsidized Stafford loans. When applying for a loan, a student agrees to such terms when signing a Master Promissory Note.
Grace Periods
After graduation, a grace period sets in on federal student loans. For Stafford loans obtained through both the Direct Loan Program and the Federal Family Education Program, there is a six-month window before repayments set in. For federal Perkins loans, this grace period is nine months. Payments may still be made during this grace period, but they are not mandatory. For other student loans such as PLUS loans, repayment is due 60 months after the last loan installment. However, for some PLUS loans, such as those taken out by graduate students, a deferment of up six months is available for loans disbursed after July 1, 2008.
Repayment Conditions
The interest rate set on federal student loans depends on the type of student loan and when it was disbursed. The interest rate is fixed at 4.5 percent for all undergraduate direct and FFEL student loans except for PLUS loans disbursed between July 1, 2010 and June 30 2011. For graduate students, this is fixed at 6.8 percent. For PLUS loans, this interest rate is larger at 7.9 percent. Interest rates may change depending on the dates of disbursement. Payments are made on a monthly basis. Those who fail to pay on time run the risk of being in default. Defaulting on a student loan may hurt credit ratings, tax refunds may be withheld, and further student loans may not be available.
Payment Plans, Deferment and Forebearance
A standard federal student loan is repaid over 10 years. However, loans that have an outstanding balance of $30,000 or more may have their repayment extended over a 25-year period. This will reduce monthly payments, but will increase the amount of interest accrued over the lifetime of the loan. Payment may also be postponed through both deferment or forbearance. Those who are unemployed may apply for deferment. Interest will accrue on unsubsidized loans while in deferment. Forbearance may be applied for if deferment is no longer available. However, interest accrues on both subsidized and unsubsidized loans.
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