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Common Student Loan Terms You Should Know

    The student loan process can be scary and confusing, especially if you're a first-time borrower. It's no wonder many students don't know the difference between subsidized loans and unsubsidized loans or what a consolidation loan entails. In this guide, the following common terms related to federal student loans will be covered so you can answer any questions your friends may have about their own borrowing.


    Subsidized loans & Unsubsidized loans

    • Subsidized loans are loans that the government pays the interest on while you are in school.
    • Unsubsidized loans are loans that you have to pay the interest on while you are in school.
    • Subsidized loans are better than unsubsidized loans, but if you can't do them, then don't worry.

    Federal student loan consolidation

    The process of consolidating your federal student loans involves combining one or more existing federal student loans into a new loan. It may help you lower your monthly payment, extend the repayment period and when used in conjunction with an income-driven repayment plan, could qualify for forgiveness after 20 years. Consolidation has its drawbacks as well, so be sure to weigh all of your options before choosing this option.

    Standard Repayment Plan

    If you're looking for a student loan repayment plan that's simple, you can't go wrong with the standard repayment plan. This is the most common option and one of the best because it allows you to pay off your debt in 10 years or less with low student loan refinance rates.

    The standard repayment plan also comes with several restrictions:

    • You must make monthly payments at least equal to 1% of your original balance plus interest. If your payment is less than this amount, then it will accrue interest capitalization meaning that any unpaid interest from previous months will be added to the principal balance.
    • For undergraduate loans taken out prior to July 1st, 2014 and for some graduate loans taken out after June 30th, 2006 but before July 1st, 2014 you may not be eligible for this option if none of your loans are subsidized by federal programs such as Direct Loans or Perkins Loans which provide reduced rates.

    Student Loan Grace Period

    The grace period is a six-month period after you graduate or drop below half-time enrollment. During this time, you don’t have to make payments, but interest will accrue. However, if you enter into the grace period after your first payment is due and before October 1 for subsidized loans or March 1 for unsubsidized loans, the interest that accrues during the first 60 days of your loan term isn’t capitalized. It is added to what you owe as part of your principal balance. After this 60-day window closes and on future interest payment due dates during your grace term, any unpaid interest will be capitalized and added to what you owe as part of your principal balance.

    Hopefully, this article has given you a better understanding of some common student loan terms and how they can impact your life. Remember that if you have any questions about these or other topics related to paying back your debt, it's always best to talk with someone before making any decisions on your own. Many lenders, including SoFi, have support centers where you can get answers to any questions you might have about applying for a loan.

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