Government School Loans (The Basics of Government School Loans)
Understanding the government school loans you take out is just as important as which loans you take out and how you plan to repay them. You should be aware that each of the government school loan programs has a set of requirements, interest rates, repayment choices and award amounts. In some cases there are different rules for each program. You will be repaing these loans for 10 to 30 years (yes, years) so making the best loans decision is important. Here are some basic factors of government school loans.
Government School Loans are Based on Need
There are government school loans that are based on financial need. These loans are offered to students who come from “depressed” areas or from low income homes. These types of government school loans have the lowest possible interest rates and the most flexible repayment options. Some examples of need-based loans are Perkins and subsidized Stafford loans.
Subsidized Government Loans
Taking out government school loans that are subsidized allows the government pays the interest on your loans while you are enrolled in your degree program at least half time. You only have to pay on the interest accrued when you begin repayment. If you drop below half time you immediately enter the grace period on your loans and will have to begin repaying.
Deferment and Forbearance
The deferment option on government school loans allows you to delay repaying your loans as long as you are enrolled in some program at least half time. If you have a subsidized loan, the government will take care of the interest while your loans are in deferment.
If you experience financial hardship during your repayment period, you can request forbearance as a way to delay repaying your loans. Forbearance is a short term delay in repayment and all interest accrued is the responsibility of the student.
Repayment of Government School Loans
When the time comes to repay your government school loans you will first enter the grace period. This means you are no longer a student at least half time but you are not yet required to begin repaying the loans. The grace period is anywhere from six to twelve months depending on the loan. Once you enter the repayment period it is important that you make sure your payments are on time because late payments can hurt your credit rating.
You will first enter the delinquency status for late payments. Next, if you do not repay the government school loans, you will enter default status. If you default on your loans the government can take legal action against you. You can have your credit ruined, your income tax returns taken and your wages garnished among other methods to ensure repayment. The government takes taxes out of your pay before you see the pay stub; they can most certainly take the money back from you that you agreed to repay.
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