Making “Cents” of Student Loan Terms (Financially Free Friday #2)

And here we are, jumping right back into Financially Free Friday! (And yes, there was a name change as voted on by… Something much more uplifting was in order.) I would have had a post up last week, unrelated to any sort of financialness (ooooh, that’s a fun word), however, I was taking in the gorgeousness that is Alabama and having some much-needed family time. 

So, now you have entered into the topsy-turvy, Alice in Wonderland-like, world of student loans. Up is down and nothing makes sense. Think of Sallie Mae as the Queen of Hearts and you’re little Alice, trying desperately to understand where you are, all the while really wanting to keep your head (figuratively and literally).


Photo Credit: smhesaplari1119 via Compfight cc

You’ve graduated and about 6 months later, the letters, phone calls, e-mails, and various other reminders are popping up that you need to start making payments on your student loans. But wait, you’re still trying to find a job and all the while you’ve come to the realization that “entry-level” is often synonymous with “four years of experience.” Doesn’t matter. Remember, you borrowed this money, with the promise that you would pay it back, even if you have to sell your left arm. You entered into a financial contract stating all of this.  Did you think your loan company actually cared about you?? Oh, that’s rich and yes, they are that ruthless.

It’s extremely overwhelming when you are first starting to make sense of it all but I assure you that it’s do-able. You just need to get serious, roll up your sleeves, and make a plan. But first, we need to know what all these fancy words mean. I highly recommend knowing these terms before you take out any sort of student loans. So, let’s plunge down the rabbit hole, shall we?

Accrue: This is the interest that builds up, over time, on your loans. We don’t like this, mainly because you will feel as if you are paying interest for what seems like forever, while seemingly making very little to no progress on the principal amount of the loan. (Smaller principal = lower interest) This is also why you want to pay more than the minimum due, whenever you can.

Capitalization or capitalized interest: When you enter the “repayment period” (when you start giving most to all of your money to the lending companies after college), any unpaid interest is added to the principal balance. This interest may have been “deferred” while you were in school, on a federal loan for example. This also happens after loan “consolidation.” Basically, the interest is added to the principal, increasing the amount you owe, therefore increasing the interest you owe, again. You’re paying interest on your interest!!


Photo Credit: knittinandnoodlin via Compfight cc                                                    Even this pepper is perturbed by all of this.

Consolidation: Taking all your loans and making one loan out of them. It may sound like a good idea, but borrower beware. Yes, you will be making maybe only 1 or 2 payments (depending on whether you have federal and/or private loans) instead of multiple, but you may end up paying more over time and lose out on some benefits, such as loan forgiveness. (And yes, the terms “benefits” and “student loans” sound completely ridiculous together.)

Default: When you are no longer paying your loan, and not in a good “I paid off my student loan!” way, but rather, in an “I can’t afford to keep paying this.” kind of way. This happens after a payment hasn’t been made for 270 days and can also affect your credit.

Deferment: With federal loans, you can temporarily stop making payments and will not be charged interest on subsidized loans. However, you will still be charged interest on your unsubsidized loans. I don’t recommend doing this unless you are in serious financial trouble and need to catch up a little bit. (Even then, see if your lenders will work with you on lowering your payments first.) And, as with all things, there are guidelines for if and how often you can defer your loan payments.

Delinquency: Not making a loan payment when the payment is due. Depending on the lender and type of loan, this could mean missing it by even just one day.

Direct Loan: Offered by the U.S. Department of Education in order to “pay” for your college education.

Expected Family Contribution (EFC): When you fill out your FAFSA, there is a magical formula used to calculate how much financial aid you are eligible for. Here’s a link to a more in-depth look at the formula, in fact, it’s 36 pages of it, brought to you by your friends at the Department of Education: EFC Formula.

FAFSA: Free Application for Federal Student Aid. This must be filled out if you want any sort of assistance in paying for school, whether it’s work study, grants, or loans. (We like the first two, the third one, not so much.) This needs to be completed every year you’re in school.

Forbearance: Similiar to deferment, although, interest will still accrue on both subsidized and unsubsidized loans. This is an option if you are not eligible for deferment.

Forgiveness: Your student loan debt is forever evaporated into the atmosphere or “forgiven.” I actually don’t really know where it goes. This can be achieved through various forgiveness programs, some of which are largely based on your profession. Those working in the fields of teaching, social work, or the non-profit sector may have a better chance, however, it never hurts to look. Read more here—->Public Service Student Loan Forgiveness

I don’t know about all of you, but I think that’s enough for one day. I’ll wrap up the other half in the next couple of weeks. Until then, stay positive, stick to your plan, be smart, and keep working on being financially free! Oh, and enjoy these pictures of adorable animals to refresh your mind from everything I just crammed into it. (Technically, 4 cute animals, and 1 grumpy cat.)

Happy Friday Friends!



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