When dealing with student loans, understanding the terms used by your loan servicer is crucial for managing your repayment journey. MyGreatLakes, a major federal student loan servicer, uses a range of specific terms and concepts that can seem confusing at first. This page will help clarify the most commonly used terminology on the platform, so you can navigate your loan management with confidence and make informed decisions about repayment options, forgiveness programs, and more.
Federal Direct Loans
Federal Direct Loans are one of the most common types of student loans issued by the U.S. Department of Education. These loans are available for both undergraduate and graduate students, offering lower interest rates compared to private loans. Federal Direct Loans come with various benefits, such as fixed interest rates and income-driven repayment options, making them a popular choice for students.
Subsidized Loans
Subsidized loans are given based on financial need. These loans are available only to undergraduate students, and the government covers the interest during school, grace periods, and deferment. The benefit of subsidized loans is that the student does not have to pay interest during times when they are not required to make payments, which reduces the overall loan amount over time.
Unsubsidized Loans
Unsubsidized loans are available to both undergraduate and graduate students and are not based on financial need. The key difference from subsidized loans is that the student is responsible for the interest that accrues while they are in school. If the interest isn’t paid during school, it will be added to the loan balance, increasing the total amount the borrower will have to repay in the long run.
Loan Terms and Repayment Plans
Federal Direct Loans offer different repayment plans. The Standard Repayment Plan requires fixed monthly payments for up to 10 years, while other plans, such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE), adjust payments based on income. This flexibility helps borrowers better manage their debt, especially if they face financial challenges after graduation.
Income-Driven Repayment Plans
Income-driven repayment plans are designed to make student loan payments more affordable by adjusting the monthly payment based on the borrower’s income and family size. These plans are especially helpful for borrowers who are experiencing financial hardship or have a low income.
Income-Based Repayment (IBR)
The Income-Based Repayment (IBR) plan calculates monthly payments as a percentage of discretionary income, typically 15%. The monthly payment is adjusted each year based on the borrower’s updated income and family size. If the borrower’s income is low, their monthly payments may be reduced significantly, making the debt more manageable.
Pay As You Earn (PAYE)
PAYE is another type of income-driven repayment plan that reduces monthly payments to 10% of discretionary income, which is generally more affordable than IBR. Unlike IBR, PAYE has stricter eligibility requirements, but it offers a lower monthly payment and allows borrowers to pay off their loan in 20 years.
Revised Pay As You Earn (REPAYE)
The REPAYE plan offers the same percentage as PAYE, with monthly payments set at 10% of discretionary income. However, REPAYE differs from PAYE in that it has fewer eligibility restrictions and also provides some benefits, such as interest subsidies for the first three years of repayment. REPAYE extends loan repayment terms to 20 years for undergraduates and 25 years for graduate borrowers.
Loan Consolidation
Loan consolidation is the process of combining multiple student loans into one single loan. This can simplify loan management by reducing the number of monthly payments, and it may also provide access to additional repayment plans.
Federal Loan Consolidation
Federal student loans can be consolidated into a Direct Consolidation Loan. This process allows borrowers to combine multiple federal loans into one loan, and the new loan will have a fixed interest rate based on the weighted average of the loans being consolidated. While consolidation can simplify repayment, it can also extend the repayment term, leading to a larger total interest payment over the life of the loan.
Benefits of Consolidation
Consolidating loans allows borrowers to streamline their repayment process and reduce the chances of missing payments. It may also make borrowers eligible for income-driven repayment plans that they were not previously able to access. However, borrowers should be aware that consolidating loans may affect the borrower’s eligibility for loan forgiveness programs like Public Service Loan Forgiveness (PSLF).
Loan Consolidation Limitations
While consolidation simplifies loan management, it may also come with some disadvantages. For example, borrowers who consolidate loans may lose certain borrower benefits, such as loan forgiveness or interest rate discounts. It’s important to consider both the pros and cons before choosing to consolidate loans.
Loan Forgiveness Programs
Loan forgiveness programs are designed to reduce or eliminate the borrower’s debt under certain conditions. These programs are often aimed at borrowers who work in public service or other qualifying fields.
Public Service Loan Forgiveness (PSLF)
PSLF is available to federal loan borrowers who work full-time in qualifying public service jobs. After making 120 qualifying monthly payments under a qualifying repayment plan, the remaining balance on the loan may be forgiven. This program is especially beneficial for teachers, social workers, and employees of non-profit organizations.
Teacher Loan Forgiveness
Teachers working in low-income schools may be eligible for forgiveness under the Teacher Loan Forgiveness Program. Teachers must work for five consecutive years in a designated low-income school to qualify for forgiveness. The amount forgiven depends on the subject taught and the length of service.
Income-Driven Repayment (IDR) Forgiveness
Borrowers enrolled in an income-driven repayment plan may qualify for loan forgiveness after making 20 or 25 years of qualifying payments. The remaining balance is forgiven, but borrowers must meet the eligibility requirements, such as maintaining regular payments and continuing in the income-driven plan for the full duration.
Deferment vs. Forbearance
Deferment and forbearance are options for borrowers who experience temporary financial hardship or need a break from student loan payments. However, there are key differences between the two, particularly regarding interest accumulation.
Deferment
Deferment allows borrowers to temporarily pause their loan payments. For certain federal loans, the government may cover the interest during deferment, especially for subsidized loans. Deferment may be granted for a variety of reasons, including returning to school, economic hardship, or military service. However, borrowers should be aware that interest may accrue on unsubsidized loans during deferment, which can increase the total loan balance.
Forbearance
Forbearance also pauses loan payments, but unlike deferment, the borrower is responsible for all interest, including on subsidized loans. Forbearance is typically granted for financial hardship or illness. While forbearance can provide relief from payments, it may result in a larger loan balance due to accumulating interest. It’s important to use forbearance only when necessary, as it can extend the repayment period and increase the overall cost of the loan.
Choosing Between Deferment and Forbearance
Both deferment and forbearance provide short-term relief from payments, but deferment is generally preferable when it’s available because the government may cover the interest. Borrowers should weigh the long-term impact of each option before making a decision, as continuing to accrue interest can increase the loan balance significantly.
FAQs
What is a Federal Direct Loan?
A Federal Direct Loan is a loan that comes directly from the U.S. Department of Education. It is used by students and parents to help finance education. MyGreatLakes services this type of loan, offering tools for repayment, tracking, and management.
What does loan deferment mean?
Loan deferment is a period where your loan payments are temporarily postponed. Interest may still accrue, depending on the type of loan you have.
How do I apply for loan forgiveness through MyGreatLakes?
To apply for loan forgiveness, you need to meet specific eligibility requirements, such as working in public service or a qualifying profession. You can track your progress and apply through your MyGreatLakes account once you’re eligible.
What does it mean to consolidate my loans?
Loan consolidation combines multiple federal loans into one loan. This can simplify repayment, and it may extend your repayment term or offer new repayment options.
What is the difference between Deferment and Forbearance?
Deferment and forbearance both provide temporary relief from payments, but forbearance generally has fewer eligibility criteria. However, interest often continues to accrue in both cases.
Conclusion
Understanding the terminology used by MyGreatLakes can greatly simplify managing your federal student loans. By familiarizing yourself with the key terms, repayment options, and assistance programs, you’ll be in a better position to make informed decisions about your loan management. Whether you’re just starting out or already in repayment, having a clear understanding of the terms will help you navigate the process with ease and confidence.