The Basics of Student Loans
What types of Student Loans are available?
Student loan assistance is a very personal family decision. There are many options available to pay for education. Among them are:
Guaranteed Student Loans (GSL) or Stafford Loans:
The federal government guarantees GSL or Stafford loans. GSL or Stafford loans have a lower interest rate than other types of loans and can be subsidized and/or unsubsidized. With subsidized loans, the government pays your interest for you while you are in school. With unsubsidized loans, you will be charged interest while you are going to school, but do not have to begin paying the loan until you are done with school. Subsidized loans are based on financial need, and unsubsidized loans are available without showing financial need. You must begin paying these loans 6 months after you leave school.
PLUS Loans (Federal Parent Loans):
Parents or guardians with a dependent child in an at least part-time program are eligible for PLUS Loans. The interest rate for a PLUS Loan is 9% or less, plus fees. PLUS loans are available regardless of your income, but lenders will consider your credit history. You have to start repaying a PLUS Loan 60 days from when the loan is given to you.
Direct Student Loans (Perkins Loans):
Direct Student Loans are handled directly by the school you are attending. The interest rate is lower than a GSL. You have to start repaying between 6 and 9 months after you finish school.
Once you have completed your program of study, you must make arrangements to repay your loans. You will need to contact your financial institution and/or your lender and negotiate consolidation and repayment agreements with them to ensure you begin repaying on time and avoid entering into default.
What do you do if are having trouble making your loan payments?
If you are having trouble repaying your loan, it is imperative to avoid default. The federal and provincial governments offer several different types of repayment assistance.
A deferment is a temporary suspension of monthly repayment based upon certain predetermined criteria. The earliest disbursed loan a borrower has determines deferment eligibility. The federal government may also pay the interest charged on your loan during the deferment period. To obtain a deferment or forbearance, you must apply, meet the qualifications, and send all required supporting documentation to AES or your loan servicer for review.
Forbearance is a temporary suspension of payments for a specified amount of time over the life of the loan(s). You may request forbearance for 1 to 12-month increments. Interest, for which you are responsible, continues to accrue daily during a period of forbearance. If you submit monthly interest payments during your forbearance period, you can avoid having your interest added to the principal balance of the loan. Responsible use of forbearance time will minimize interest accrual and capitalization. The forbearance period should be used to develop a budget that includes your student loan payments. Forbearance should be used as a last resort to avoid default.
What does it mean to have a loan in default?
Your loan is considered in default when there has been no payment nor attempt to arrange for payment for 180 days. To get out of default, you must request a repayment schedule from the lender. The lender will consider the request based upon information supplied and if the request is not approved, the lender will suggest a new amount.
If accepted by the student, the new plan must not reach default a second time. If the amount offered is not acceptable, re-contact the lender before agreeing to the schedule. You do not get a second chance to get your loan out of default. Agreeing to the terms is essential. When you have completed six on time payments, you can apply for a new federal loan. To be completely out of default, you must make 12 consecutive on time payments. Once your loan is out of default, you have other options available to you such as deferment, forbearance and consolidation.
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