Talking about the ins-and-outs of student loans can be complicated. Plus, anything you don’t fully comprehend is often daunting and downright confusing.
However, you can easily overcome this simply by learning about the terms and numbers attached to your student loans.
Before signing on the dotted line, here are 10 of the most common financial terms every college graduate with student loans should know.
1. Principal balance
Your student loan balance is divided up into two things: the principal balance, and the principal balance plus interest owed.
Your initial loan amount is considered the principal balance as this is the original amount of money you borrowed. However, your monthly payment takes into account the principal plus any accrued interest that’s due.
As you pay your student loan debt, a portion of the money goes towards paying down the principal. Simultaneously, another portion goes towards accrued interest.
Another important student loan term is interest. The amount of interest you pay on your student loan is different from the student loan interest rates attached to that loan.
Interest is the cost associated with borrowing money. It’s what you’ll pay over the lifetime of the student loan. It’s calculated based on a percentage of your remaining unpaid balance due.
3. Student loan interest rates
Student loan interest rates, on the other hand, is that exact percentage figure that’s charged to your student loan account.
It’s often called an Annual Percent Rate, or APR. It’s a number agreed upon by you and the lender when you first take out your student loan.
You can often refinance your student loan in an effort to lower your student loan interest rates. This, in turn, will help lower the amount of interest you pay throughout the lifespan of the loan.
4. Grace period
The grace period that’s associated with your student loans starts from the day you graduate or leave school for any other reason. It typically lasts about six to nine months.
The reason it’s called a “grace period” is that you’re not required to make any payments during this time. This can help you focus on getting a job and preparing for regular monthly student loan payments.
Once the grace period ends for your student loans, you must start paying back your loan with monthly installments.
5. Repayment term
This is a plan agreed upon between you and the lender. It determines how much you’ll pay each month towards your student loan balance and for how long.
For student loan repayment terms there are multiple types of repayment plans. A larger payment plan aids in paying down your loan faster. Conversely, a smaller monthly payment requires a longer payback term.
You can change student loan repayment plans if you’re eligible, which is something to be considered if it will help you manage your overall finances as well.
6. Discretionary income
Discretionary income refers to any income that remains after subtracting taxes, paying essential bills, and other required expenses related to the size of your family.
As you apply for different repayment options, your discretionary income will come into play by either confirming or denying your eligibility for certain plans.
7. Loan origination fee
When you first apply for your student loans or are in the process of refinancing, your lender may charge you a loan origination fee.
This is an up-front fee that covers any loan costs like time, labor, and filing fees associated with processing your student loans.
A loan origination fee is usually based on a percentage of your total loan amount and is often rolled into the principal balance of your entire loan.
8. Annual taxable income
Your annual taxable income also called annual gross income (or AGI), includes all the money you’ve received throughout the year from all income sources.
Income sources include employment income, interest income, freelance work. Other sources like investments, unemployment or Social Security is also calculated into your AGI.
If the source of income you’re receiving is considered taxable, it must be calculated into your annual taxable income. It does not include income from child support or government assistance.
9. Gross income
Gross income differs from annual taxable income in that it’s your total income before any deductions.
It includes all income from all sources, even non-taxable ones, before paying taxes, contributing to retirement accounts, and paying any other bills.
Unlike your AGI, gross income does include income from sources like child support, and federal or state assistance programs.
10. Student loans interest deduction
Every year you pay down your student loan balance is a year you may be eligible for the student loan interest tax deduction.
You can deduct up to $2,500 worth of interest paid towards your student loan, on the front portion of your tax return.
There are income limitations, but it could help reduce your total AGI and thus reduce the amount of income that you have to pay taxes on.
Understanding student loan terms
Taking on the debt burden of a student loan is serious business. Before signing on the dotted line, make sure you’re at least a little familiar with how your particular loan functions.
Not only are there a plethora of student loan terms to learn, but there are ever-changing factors like repayment plans and other figures that can affect your monthly payment.
Thankfully, you can avoid confusion and additional stress by knowing these basic student loan terms and understanding how they function.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|