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What's Your Question?: Student Loans

Monday, April 1, 2013

1. Why are federal loans preferred to private loans for financing college costs?

Federal student loans offer many benefits not typically offered with private loans, such as low fixed-interest rates, income-based repayment plans, loan cancellation for certain employment, and deferment (postponement) options, including when a student returns to school.  Also, private loans, or nonfederal loans, issued by a lender such as a bank or credit union usually require a credit check.



2. What is a net price calculator?

A net price calculator estimates the net price (all costs minus grant and scholarship aid) of attending a particular institution based on what similar students paid in a previous year.  By law, any postsecondary institution participating in Title IV federal student aid programs must post a net price calculator on its website.



3. How can I estimate how long it will take to pay off student loans?

Free online calculators can help you determine the time it will take to pay off a loan at a given monthly payment and interest rate.  Plus, you can calculate how a higher monthly payment can shorten the length of the loan and dramatically reduce the interest paid over the life of the loan.  Here is one calculator to try:


4. Can student loans be discharged in bankruptcy?

Normally, student loans are ineligible for discharge in bankruptcy unless it can be proven that the payment is an “undue hardship,” which means the borrower is physically unable to work and has no chance of earning money.



5. How can I estimate the future cost of college?

Use the calculator at the following link to estimate the future cost of college:


6. When applying for financial aid, why are grants and scholarships preferred to student loans?

Grants and scholarships do not have to be repaid; loans are borrowed money that must be repaid.


7. What consequences might a borrower face when a student loan becomes delinquent or defaults?

Delinquencies are reported to the major credit bureaus, so they can affect a borrower’s ability to get credit. When a loan defaults, the entire unpaid amount becomes due and the borrower may be sued and have tax refunds intercepted and/or wages garnished.  They may have to pay collection fees, costs, court costs, and attorney fees.  Eligibility for future loan deferments and other federal student aid is withdrawn.  A defaulted borrower can be denied a professional license.  Finally, an often-overlooked aspect of debt problems is the psychological burden carried by the borrower.



8. What are typical repayment terms for federal student loans?

The standard repayment term for federal loans is 10 years with fixed payments.


9. What are differences between subsidized and unsubsidized student loans?

Subsidized loans are awarded based on financial need; borrowers are not charged interest as long as they are attending school.  With unsubsidized loans, borrows are charged interest from the time the money is borrowed.