Variable Vs Fixed Loan Interest Rates
A variable interest rate can fluctuate over the life span of a loan. A fixed interest rate is just as it sounds fixed and unchanging for the life of a loan.
While all federal student loans come with a fixed interest rate, offer students the flexibility of a variable interest rate in addition to a fixed interest rate option. At the time of your loan disbursement, you might discover that variable interest rates are lower than the federal student loan fixed rate, but there are advantages to having a stabilized rate.
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Things You Need To Know
How Much Can You Get
The amount you can receive depends on several factors, including:
- your province or territory of residence
- your family income
- your tuition fees and living expenses
- if you have a disability
The amount you can receive in grants and loans is calculated when you apply with your province or territory.
To find out if you can receive Canada Student Grants or Loans, use the federal student aid estimator. Note that this estimator doesn’t take into account the provincial and territorial student grants and loans.
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How Do I Repay Student Loans
Federal student loans have some of the friendliest repayment terms. These types of loans also offer a six-month grace period. This means youre not obligated to start paying your loan back until six months after graduation.
The standard repayment plan for federal student loans assumes youll pay off your loans within 10 years of graduation. But you can also choose to enroll in an alternative repayment plan. Some of these, called income-driven repayment plans, tie your monthly bill to your discretionary income. There are four types:
Federal student loans also have deferment and forbearance options, which allow you to temporarily stop making payments without hurting your credit score or defaulting on your loan.
Most private student loans have repayment schedules of five to 20 years or more, and many offer grace periods. But keep in mind that interest can accrue while youre in school and during periods when you postpone payments, which isnt the case with federal direct subsidized loans. Private lenders also arent required to offer the same amount of forbearance in case you cant make payments, with limits typically at 12 or 24 months throughout the duration of the loan term. Federal loans offer up to three years of forbearance or deferment, depending on the circumstance.
Your Number One Student Loan Choice
Low cost student loans are the number one source of financial aid for college bound individuals. There are two types of student loans to consider. The Federal student loan and the private lender student loan. Both have their advantages but savvy students will turn to the Federal student loan first. With easier qualification standards and lower fixed interest rates Federal loans make a college education more accessible to students from all walks of life.
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The Basics: Understanding Federal Student Loans
College is an exciting time for you and your child. There are many unknowns, but one thing is certain: Paying for college can be easier with the right supportand thats what were here for.
Below, weve outlined some basics to keep in mind as your family prepares to pay for college.
A general rule for financing college is that you should never borrow more money than is necessary following this practice sets your child up for a more stable financial future.
Along with this basic rule, there are many other factors to think about: Which school does your child want to attend? What do they want to study? Do they know what kind of career they want, and what their expected earnings might be?
Its a lot to think about, but if your child takes a little time now to consider their future career and the potential return on investment from their education, it can plant the seed for a successful future!
What Is Net Present Value
When a loan program generates revenue over time, you can evaluate the total income of the program by calculating the current value of future income. Income includes not just future interest payments, but also future payments of principal.
A simplistic approach is to just sum the future payment amounts.
Total Student Loan Revenue = Sum Of All Future Payments
But, future dollars are worth less than current dollars, in part because of inflation.
A more sophisticated approach calculates the present value of the future payments by discounting it.
For example, if the annual inflation rate is 5%, a dollar one year from now has the same buying power as 95 cents today and a dollar two years from now is worth slightly less than 91 cents today. The cumulative impact is calculated based on a product of each years discounted value.
The present value will depend on the choice of discount rate. Common choices include the inflation rate and a risk-free rate of return. The yield on U.S. Treasuries of a comparable maturity is often used as risk-free rate of return since investments in U.S. Treasuries are low risk.
In effect, the present value is the amount you would need to invest now in a risk-free investment to yield the future stream of loan payments.
Present Value Of Student Loan Revenue = Todays Value Of All Future Payments Discounted Using Inflation And Rate Of Return
But, there are often philosophical differences in the choice of a risk-free rate of return.
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Federal Student Loan Repayment Plans
Every loan comes with terms for how and when you will be required to repay it. The repayment term usually refers to the amount of time you are given to repay your loan. Paying the loan back sooner will result in a lower overall cost but will result in larger monthly payments. Repayment terms can also refer to different options for repayment.
In the case of federal student loans, the Department of Education sets out all terms for repayment. If circumstances make monthly payments difficult to meet, the DOE has programs that can lower or erase your monthly payments, and/or extend your repayment duration.
Youre Our First Priorityevery Time
We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.
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What If I Cant Repay My Student Loans
If youve had difficulty finding employment after graduation and you cant make your monthly student loan payment, you dont need to resort to a debt consolidation loan or a credit counsellor like Consolidated Credit just yet. You can apply for the repayment assistance plan . RAP is available in every province and, although some vary in detail, most of them are similar to the federal RAP. Here are the details:
When you apply for RAP, youll need to prove that your financial situation cant support your monthly payments. Youll need to provide details about your income, and, depending on those details, you may be assessed to make a payment that does not exceed 20% of your income.
You can apply for RAP when your student loans go into repayment or if your financial circumstances change. RAP requires you to re-apply every six months, but there is no limit on how long you can use RAP. If youve been eligible for 60 months, the federal government will begin to cover both the interest and principal amounts that exceed your monthly payments.
Student Loan Registration Requirements
In most provinces youll need to be registered in at least 60% of a full course load. For students from Newfoundland and Labrador, registration in 80% is required for the provincial portion and 60% is required for the federal portion. Students who have been assessed as having a permanent disability are eligible for a full-time loan at 40%.
Please note: a typical full course load at Dalhousie is comprised of 15 credit hours.
If youre registered for 20% to 40% of a full course load, complete the part-time loan application .
Please note: a typical full course load at Dalhousie is comprised of 15 credit hours.
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Are All Student Loans Issued By The Federal Government
An overwhelming majority of the outstanding student loans held by Americans–92%, or 43 million borrowers–are federal loans of some type. The US Department of Education holds $1.4 trillion of the $1.6 trillion of total outstanding student debt collectively held by Americans.
As for the remaining borrowers, private loans comprise 7.63% of the total outstanding student debt at $119.3 billion.
State government-issued student loans are far rarer in terms of both offerings and eligible borrowers, so they only comprise 0.37% of the student debt held by Americans.
Refinancing Federal Loans To Private
In some cases, borrowers might choose to refinance federal loans to private. This option is usually exercised to obtain a lower interest rate or to release a cosigner from their obligation to the loan. However, when you switch from a federal repayment program to a private one, your loan might be subject to the fluctuations of variable interest rates and you will no longer be eligible for the protections and benefits, like income-based-repayment and loan forgiveness.
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Q Who Is Doing All This Borrowing For College
A. About 75% of student loan borrowers took loans to go to two- or four-year colleges they account for about half of all student loan debt outstanding. The remaining 25% of borrowers went to graduate school they account for the other half of the debt outstanding.
Most undergrads finish college with little or modest debt: About 30% of undergrads graduate with no debt and about 25% with less than $20,000. Despite horror stories about college grads with six-figure debt loads,only 6% of borrowers owe more than $100,000and they owe about one-third of all the student debt. The government limits federal borrowing by undergrads to $31,000 and $57,500 . Those who owe more than that almost always have borrowed for graduate school.
Where onegoes to school makes a big difference. Among public four-year schools, 12% ofbachelors degree graduates owe more than $40,000. Among private non-profitfour-year schools, its 20%. But among those who went to for-profit schools,nearly half have loans exceeding $40,000.
Among two-year schools, about two-thirds of community college students graduate without any debt. Among for-profit schools, only 17% graduate without debt .
The End Of The Federally Guaranteed Student Loan Program
Responding to arguments that the FFEL program was more costly to the government than direct loans, Congress ended the FFEL program effective June 30, 2010.
Although schools no longer offer guaranteed student loans, the guaranteed student loan system will be in place for many years to come. That’s because millions of borrowers still owe money on FFEL guaranteed loans. The guarantee agencies will continue to pay banks for defaulted FFELs and pursue collection on those loans until the last FFEL is paid off.
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Why Consider A Federal Student Loan
College loans provided by the U.S. Department of Educations federal student loan program, known as the William D. Ford Federal Direct Loan Program, generally have lower interest rates and more flexible repayment terms than private loans.
If you demonstrate financial need, you may qualify for a Direct subsidized loan. The advantage of subsidized loans is that the government pays the interest on the loan while you are in college. If you are unable to demonstrate financial need, you may still be eligible for an unsubsidized federal student loan. With a Direct unsubsidized loan, you are responsible for paying the interest even while youre in school.
What Are The Interest Rates On Federal Student Loans
The interest rate on federal student loans is established annually and varies depending on the type of loan. Federal student loans also have fees, which will be deducted from your award. Below are the interest rates and fees for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2021, and before July 1, 2022.
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Many Ways To Pay For College
Student loans arent the only way to pay for college. There are a variety of resources available to help you get the money you need. Opt for the items at the top of this list first, and work your way down to put your child in the best financial situation possible upon graduation.
To apply for a federal student loan, your child must complete the Free Application for Federal Student Aid , and do so as soon as possible before each year that they will need federal student aid. Note that there are federal and state FAFSA deadlines, and colleges sometimes have individual deadlines. The FAFSA is the main determining factor the government uses to decide how much money borrowers qualify for, and the first students who apply are the first students who will receive a response.
Private Undergraduate Student Loans
Private student loans for undergraduate students function similarly to other types of private loans in that a credit and income review will be required to determine your ability to repay the loan. This review can also affect the interest rate on your loan. Since most undergraduate students have not yet established a credit history or have a steady income, it is often necessary to apply with a cosigner.
Learn more about .
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Leaving The Country To Evade Repayment
Debt evasion is the intentional act of trying to avoid attempts by creditors to collect or pursue one’s debt. Some news accounts report that individuals are fleeing the US in order to stop repaying their student loans. While leaving the country does not discharge the loan or stop interest and penalties from accruing, it is generally more difficult to collect debts against debtors who reside in foreign nations.
International addresses make it more difficult to find people, and collection companies would usually need to hire an international counsel or a third party collector to recoup the debt, cutting into their profits and reducing their incentive to go after a debtor. ‘It increases our expenses to go overseas,’ says Justin Berg of American Profit Recovery, a debt collection agency in Massachusetts. ‘Our revenues are cut by more than half,’ he says.”
Some nations may enter into agreements with the US to facilitate the collection of student loans.
After default, co-signers of student loans remain liable for repayment of the loan. Cosigners are often the parents of the borrowers.
How Do I Know If My Student Loan Is Federal Or Private
With the confusion over government-issued versus government-backed loans, lenders that sell outstanding student loans to different servicing companies, and often needing multiple types of debt to finance your education, it can quickly become difficult to determine if you have federal or private student loans. But even if you only took out federal loans, this difficulty gets compounded since the US Department of Education does not administer the loans themselves. Management of student loan disbursement is handled by private contractors called servicers.
To determine if your student debt is federal, check the National Student Loan Data System. This database contains federal loans only. You can enter your Federal Student Aid ID or create one, along with your Social Security number and other key identity information. The database can then tell you if any federal student loans were taken out under your name and Social Security number. All loans that were disbursed to you should be shown along with the original amount you borrowed and how much you now owe. The numbered box will inform you which servicer was assigned to this loan, and you can view all of the terms that apply to each loan you have taken out.
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Federal Vs Private Student Loans
There are two types of : federal student loans and private student loans. If youre trying to figure out how youre going to pay for school, youve likely thought about both. Federal and private student loans are not the same and its important to know the difference.
Federal student loans are made and funded directly by the federal government. To apply, you need to complete the Free Application for Federal Student Aid .
Sometimes referred to as non-federal or , private student loans are made and funded by private lenders, such as banks and online lenders.
But when it comes to paying for college no matter if youre an undergraduate student, a graduate student, or a parent theres more to know about federal vs. private student loans. Lets look at each one in more detail.