A student loan is a type of loan offered by different entities, including the federal government, private lenders, banks and other financial institutions, that helps students pay for the cost of post-secondary education. Student loans are designed to cover costs associated with higher education, including tuition, living expenses, books and supplies. As with other types of financial loans, the principal is the amount borrowed, while the interest is the cost over time for borrowing the money.
Federal Student Loans
Whether you’re an undergraduate student, a graduate or professional student, or a parent, you may be eligible to borrow student loans from the federal government. If you are considering a federal student loan, visit the official Federal Student Aid website to review their student loan resources and guidelines.
Private Student Loans
There are many private loan options for borrowers to explore. You can narrow down your options by first deciding if you’re more comfortable with a fixed rate or a variable rate, considering the pros and cons of each. You’ll also want to have an idea of your credit score to know if you qualify for the lender you’re interested in. Resources like NerdWallet allow you to view a variety of private student loan lenders side-by-side and compare their benefits before you apply.
You have a lot of control over how you pay off your student loans. For those wanting to pay off their student loans quickly, many lenders offer plans with a higher monthly payment and lower interest rates. Conversely, if you’re looking to keep your monthly costs low, you may choose a loan with a lower monthly payment and higher interest rate, paid over a longer period of time. In both cases, student loan refinancing may help you to reduce your interest rate and adjust the length of time left on your loan based on your most-current needs and financial goals.
After you graduate, the process of paying your balance will become quite routine. Most lenders have a portal that will allow you to log in each month and pay a portion of your student loan balance, at or above your minimum payment. You can often set up automatic payments that will be deducted from a checking or savings account on a monthly basis. And if you want to make additional one-off payments, you can also make lump sum payments to decrease your student loan balance more quickly.
If your parents obtained a parent PLUS loan to pay for your education, your parent is required to make payments on that loan. The process of paying back a parent PLUS loan is very similar to that of standard student loans, as most are payable within your lender’s portal.
To learn more about parent PLUS loan interest rates and repayment guidelines, visit the official Federal Student Aid website.
Interest is the cost you pay to borrow money and pay it back to the lender over time. Interest is calculated as a percent that the lender applies to your principal loan amount. Interest adds to the total cost of your loan. There are two types of interest rates that could be attached to your student loan: fixed interest and variable interest.
Fixed Interest Rate
Fixed interest rates remain the same throughout the life of your student loan. Fixed interest rates are often higher than variable interest rates at the time of applying for your loan, but fixed rates are generally considered to be the safer option because your interest rate will not change unless you choose to refinance. All federal student loan interest rates are fixed. Private student loan lenders typically offer both fixed and variable interest rates.
Variable Interest Rate
Variable interest rates are based on an index that is a value quoted in the financial markets. Usually, the lender adds an additional amount, called a margin, to the index to calculate your variable rate. The index, and therefore, the variable interest rate may change throughout the life of a student loan. This type of rate may increase or decrease due to changes in the economic environment. This makes variable interest rates the more enticing and risky option. Private student loan lenders typically offer both fixed and variable rates.
If you are eligible for student loan forgiveness, it releases you from the need to repay part or all of your federal loan, but it depends on very specific terms of forgiveness.
There are several ways to get out of student loan debt. The most straight-forward method is to continue paying the balance of your student loan until it’s been paid in full. However, you can also explore alternative ways to decrease your monthly payment or pay your loan off in less time by refinancing your student loans. Refinancing allows you to renegotiate the terms of your loan to better suit your current situation (this is where Splash can help!). You can also visit the official Federal Student Aid website to learn if you qualify for student loan forgiveness.
Your monthly student loan payment will depend on a number of different factors, and it is entirely unique based on your financial situation. Below are a few factors that can impact your monthly payment:
- Total loan amount
- Interest rate
- Type of interest rate
- Loan term (how long it will take to repay your loan amount)
Because your student loan payment is often small compared to the overall loan amount, we recommend using a loan payment calculator to help you understand how decreasing or increasing your payment amount may affect what you pay over the life of your loan.