Everything You Need to Know About US Student Loans

To apply for a federal student loan, you’ll firstly need to fill in the Free Application for Federal Student Aid (FAFSA) to see if you’re eligible for federal grants, work-study and federal loans.

Based on the results of your FAFSA, your college will send you a financial aid offer, which will include federal student loans. 

How you apply for a private student loan will depend on your lender. However, to apply for most private loans you’ll be asked to share a few details about yourself. The lender will then do some basic credit checks to see if you’re eligible. (Find out how to boost your credit score here.) The lender will then let you know if you’re eligible for the loan and, if you are, will arrange to send over the funds.

Students with a federal student loan can change their repayment plan for free once every year, so long as the maximum loan term for the new plan is longer than the amount of time your loans have already been in repayment. Trying to charge students to change their repayment plan is a common student loan scam which students should be aware of. 

Each of these repayment plans are open to all federal student loans, unless specifically stated otherwise.

Private student loan repayments are entirely dependent on the lender, so you’ll need to agree the repayment terms when you take out the loan.

These are the main repayment plans for students with federal student loans: 

Standard repayment plans

You are automatically put in the standard monthly repayment plan when you open your student loan but have the opportunity to switch at any time. Under the standard monthly repayment plan, students will make equal monthly repayments for ten years.

Under this plan, you will most likely repay your student loan faster and will pay less interest overall.

Graduated repayment plans

If you choose a graduated repayment plan, you’ll be repaying your student loan for ten years, but this repayment loan helps to keep the repayment costs low for recent graduates.

This is because recent graduates may have low starting salaries but will expect to see their salaries increase over the ten-year repayment period. Under this plan, the amount you’ll be repaying each month will increase every two years, to match your (hopefully increasing) salary.

This plan is much like the graduated repayment plan but allows you to extend the time you repay from 10 years to 25 years. This will reduce the amount you pay each month but will increase the amount you pay in interest overall. 

This plan is available to anyone who has over $30,000 in student loan debt.

Income-based repayment plans

Income based repayment plans are available for federal student loan holders and can help get some of your student loan forgiven. 

There are four different types of income-based repayment plans:

• Pay As You Earn Repayment Plan (PAYE): Monthly repayments are limited to 10 percent of your income after tax and the remaining balance is forgiven after 20 years. 

• Revised Pay As You Earn Repayment Plan (REPAYE): Monthly payments are 10 percent of your income after tax and any outstanding balance will be forgiven after 25 years.

• Income-Based Repayment Plan (IBR): Monthly payments are 10 to 15 percent of your income after tax, depending on when you received your loan. Outstanding amounts after 20 or 25 years (depending on when you started the loan) will be forgiven, but you may have to pay income tax on this forgiven amount.

• Income-Contingent Repayment Plan (ICR): Monthly repayments are 20 percent of income after tax or fixed payment over 12 years adjusted to your income. After 25 years, the outstanding balance will be written off.

Income-sensitive repayment plans

Income sensitive repayment plans are available to anyone with a subsidized federal student loan, unsubsidized student loan, federal PLUS loans or federal consolidation loans. 

Under this repayment plan, your monthly payments will increase or decrease each year based on your annual income and you’ll pay for a maximum period of 10 years.

Yes, but only under extremely rare circumstances. Student loan discharge is usually awarded by a judge. 

Your student loan may be discharged for several reasons:

• Permanent disability
• Death
• Identity theft
• Bankruptcy
• False certification of student eligibility
• A university’s unauthorized signature of the loan without your knowledge