Federal Loans vs. Private Loans

Federal Loans vs. Private Loans

What are the Differences Between Federal & Private Student Loans?

Federal student loans are provided by the government after a student or their family fills out a FAFSA. The conditions are mandated by law and include specific protections (such as fixed interest rates and income-driven repayment plans) not usually associated with private loans. Unlike federal loans, private loans are provided by private companies like banks or credit unions. Private loans have terms and conditions that are set by the lender. Private student loans are generally more expensive and offer fewer benefits and protections than federal student loans.

How Do I Know If I Have a Private or Federal Loan?

Federal student loan information can be found by going to www.StudentAid.gov. If you do not know the name of your lender or servicer, and you cannot find your loan information at StudentAid.gov, you most likely have a private loan. You can find information about your private loan by checking your credit report.

Any student loan information that shows up on your www.StudentAid.gov account are federal loans. It is common that borrowers have both Federal and private loans. If you have a loan that doesn’t show up on your www.StudentAid.gov account, it is important to check your credit report to find out who your private loan company is.

Are There Different Interest Rates With Federal and Private Loans?

Federal loans have fixed interest rates that are usually lower than private loans. Private student loans can have variable or fixed interest rates. The interest rate on private student loans can be higher or lower than the interest rate on federal loans.

Do Private Student Loans Have Repayment Plans?

Only federal student loans have mandated repayment plans by the government. If you have a private student loan, and are struggling to make your monthly payment, you should contact your loan servicer to inquire about any repayment plans they offer. 

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What You Need to Know About Income Driven Repayment (IDR) Plans

What You Need to Know About Income Driven Repayment (IDR) Plans

What Are Income-Driven Repayment Plans?

Income-Driven Repayment (IDR) can make monthly payments more affordable for borrowers with lower income. In an IDR Plan monthly payments are calculated as a percentage of ‘discretionary income’ based on income and family size. If your income increases while on an IDR plan, your payments can increase. Conversely, if you lose income perhaps due to losing your job, your monthly payment can be reduced to $0.00. After completion of an IDR Plan, any remaining debt may be forgiven. Below is a chart with how different IDR Plans monthly payments are calculated and an estimated timeline for the plan.

Different IDR Plans How is my monthly payment calculated?

*percentage of “discretionary” income*

How many years can I stay in the plan for?

*any remaining debt is forgiven after completing these timeframes*

Revised Pay as You Earn (REPAYE) 10% 20-25 years
Pay as You Earn (PAYE) 10% 20 years
“New” Income-Based Repayment (IBR) 10% 20 years
Income Based Repayment (IBR) 15% 25 years
Income Contingent Repayment (ICR) 20% 25 years

When Do I Sign Up For an Income-Driven Repayment (IDR) Plan?

After your 6-month grace period ends (when you leave your higher education program or graduate) you will automatically enter the 10-year Standard Repayment Plan. You can enroll in an IDR Plan at any time when you are paying off your student loans.

To remain in an IDR plan, you must recertify your income and family size with your servicer annually. If you don’t recertify by your specific deadline, your monthly payment will increase to the amount you would pay under the 10 year Standard Repayment Plan.

If you don’t recertify your income by the annual deadline any unpaid interest will be capitalized (added to the principal balance of your loans). This will increase the total cost of your loans over time because you will then pay interest on the increased loan principal balance.

Borrowers who fail to recertify can still reenter an IDR plan at any time. And, borrowers can recertify their income at any time if they need to adjust their payments due to loss of income or job.

What Happens If My Income Increases Under the Income-Driven Repayment (IDR) Plan?

If your income ever increases to the point that your calculated monthly payment amount would be more than the 10-year Standard Repayment Plan, you’ll remain on the IDR plan, but your payment will no longer be based on your income.

Instead, your required monthly payment will be the amount you would pay under the 10-year Standard Repayment Plan, based on the loan amount you owed when you first began repayment. Again IDR Plans are especially beneficial to borrowers who are lower-income or may have become unemployed. 

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