Even if you are aware of all your loans, it’s always a good idea to pull your credit report from the three credit reporting bureaus, especially if it’s been more than a year since you last pulled it or if you have never done so. You are entitled to a free credit report from each bureau once a year. See a useful overview of credit starting on page 215.
Gather all your student loan information and put it into the student loan spreadsheet found here: StudentLoanSolutionBook.com.
Key information to find out includes:
•Type of Loan
If you have federal loans, note whether they are from the Federal Direct Loan Program (FDLP) or Federal Family Education Loan (FFEL) Program, as well as whether they are subsidized or unsubsidized. This will be indicated when you log in and click on your loan information. It’s okay if this doesn’t mean anything to you right now—it will soon!
•Loan Servicer
There are a limited number of loan servicers for federal student loans. They include companies like Navient, Nelnet, and MOHELA. It’s not uncommon to have a variety of servicers for your loans.
•Principal Amount
The amount of money that you currently owe on your loans.
•Accrued Interest
Interest accrues in certain situations on certain loans, such as when your loans are in forbearance or deferment. Interest can also accrue if you are in an income-driven repayment plan and your monthly payment doesn’t cover all the monthly interest.
•Revised Principal Amount (Principal plus Accrued Interest)
In most cases, the accrued interest is eventually added to the principal of a loan through a process called capitalization. Looking at your principal balance plus accrued interest gives you a look at the true balance of your student loans.
•Interest Rate
The percentage of the principal charged as interest by the lender.
•Fixed or Variable Interest
Federal student loans have a fixed interest rate, but others, such as private loans, can have a variable interest rate that fluctuates over time.
•Monthly Payment (If Known—This Can Be Calculated)
You may have a good idea of what your monthly payment is, especially if you have already started to pay your loans on a standard ten-year repayment plan. You can get an estimate of your monthly payment under that standard plan in one of the tabs of the student loan spreadsheet5 by plugging in your loan variables (principal, interest rate, etc.). If it seems high or unaffordable, don’t panic. For federal student loans, there are income-driven repayment plans available, which we will cover in step two. If you only have private student loans and your payment is unaffordable, we’ll cover that in step two as well.
•Projected End Date (Estimate)
Assuming you are on the standard ten-year repayment plan, this can usually be calculated relatively easily. If you are on an income-driven repayment plan, this will be more difficult to calculate. This date isn’t necessary, but, in some situations, it can be helpful.
As you read about the various types of loans, you can refer back to your spreadsheet to determine which types you have.
The Different Types of Student Loans
Not all loans are created equal. As you likely saw on your student loan snapshot, there are a variety of loan types.
Generally speaking, student loans can be put into three buckets: federal, private, and state. Federal loans are the most common. Private and state loans are less common, though private loans have been increasing in popularity recently.
Going through the different types of loans may be overwhelming, but gaining this knowledge is important for the ultimate goal of feeling in control of your loans.
Federal Student Loans
There are two federal student loan programs: the William D. Ford Federal Direct Loan Program (FDLP) and the Federal Family Education Loan (FFEL) Program.
The FFEL program will only impact you if you took out college loans prior to the 2008–2009 school year (I did). It’s been discontinued since 2008.
The FFEL program was only slightly different from the William D. Ford Federal Direct Loan Program. Loans in the FFEL program originated at private institutions, meaning these private institutions funded the loans. The federal government paid fees to the private institutions to originate and administer the loans. Eliminating the FFEL eliminated the private institutions that were middlemen in the process. This contrasts with the FDLP, where the government raises funds through debt offerings.
The Department of Education administers loans through the FDLP via the Office of Federal Student Aid. These loans are approved through the Department of Education and disbursed by the borrower’s school. Once disbursed, the loans are assigned to a loan servicer (Nelnet, Navient, etc.). The loan servicer is responsible not only for collecting on the loans, but also for communicating information to borrowers while they are in school and when they enter repayment.
Federal student loans come with benefits that you won’t find with private student loans. Interest rates on federal student loans are fixed and are usually relatively low.6 Borrowers have options to consolidate their loans, as well as delay payment on their loans through deferment and forbearance. They also have the ability to enter into income-driven repayment plans and potentially have their loans forgiven.
Not counting consolidation loans, which combine a variety of different types of loans, these are the different loan types offered through FDLP and FFEL:
Federal Direct Loan Program
•Direct Loan Subsidized Stafford
•Direct Loan Unsubsidized Stafford
•Direct Loan Unsubsidized Stafford—Graduate or Professional Students
•Direct Loan PLUS—Graduate or Professional Students
•Direct Loan PLUS—Parent
Federal Family Education Loan Program
•FFEL Subsidized Stafford
•FFEL Unsubsidized Stafford
•FFEL Unsubsidized Stafford—Graduate or Professional Students
•FFEL PLUS—Graduate or Professional Students
•FFEL PLUS—Parent
One of the most important concepts related to federal student loans is the difference between subsidized and unsubsidized loans. Subsidized loans are preferable, especially if you plan on going to grad school, in which case most people put their loans in deferment.
Direct subsidized loans start accruing interest only when you start repaying your loans. Meaning, interest is not building on these loans while you are in undergrad or grad school, nor when you defer your loans. Note that interest does accrue if you enter forbearance (more on that in a bit).
Direct unsubsidized loans are less advantageous than federal direct subsidized loans because interest starts accruing as soon as the loan is disbursed. If you were disbursed an unsubsidized loan as a freshman, for example, you started accruing interest immediately.
Once you enter repayment, typically six months after finishing undergrad, all your accrued interest is added to the principal balance of your loans through a process called capitalization. This pushes up the overall amount you must repay. You then pay interest on that new, higher principal amount. Ditto for grad school.
With unsubsidized loans, the interest is going to continue to build and ultimately be added to the principal of your loan through