Direct Stafford Loan repayment can be one of the first harsh realities of modern adult life. But don’t worry, there are options that can help make your student loan repayment just a little less painful. First, let’s get some semantics straightened out: the name of your loans may not make much of a difference, but they can get confusing. In this case, the term “Direct Stafford Loans” and “Direct Loans” are used interchangeably.
Direct Stafford Loans were originally called the Federal Guaranteed Student Loan Program, but in 1988 they were renamed in honor of U.S. Senator Robert Stafford of Vermont, for his work on furthering the cause of higher education.
You have to repay your Direct Stafford Loan no matter what version of the loan you choose (more about this soon). Perhaps the most notable difference between the loan types is how you’ll be required to repay the interest (we’re going to show you).
So, When Do You Have to Pay Back Your Direct Stafford Loan?
The most direct answer is: after the grace period. We’ll explain: with each Direct Stafford Loan repayment plan, you are granted a little bit of time to sort out your life and get your act together. This stretch of rejuvenation, self-realization, and rebirth is perhaps euphemistically called a grace period.
The grace period for Direct Stafford Loan repayment begins the day you officially leave school. Also, if you change your student status to less than half-time enrollment, that earns you a grace period too.
Take note: educational institutions define “half-time enrollment” in different ways. The status is usually, but not always, based on the number of hours and credits in which you’re enrolled. Check with your school’s student aid office to make sure you are in sync with their official definition. Make sure everybody is on the same page before you assume that you are entitled to a grace period. The total timeframe of the Direct Stafford Loan repayment grace period: six months, and not a day more (with a handful of exceptions ).
Another thing to keep in mind about that grace period: you may want make the most of it by starting to pay back that loan in whatever way that you can. Even though grace periods are meant to give you time to reconfigure, the interest you’re being charged is still “capitalizing.” That means interest is still being added to the loan principal all during your grace period, and that’s not very graceful.
One quick thing to keep in mind while on the subject of grace periods: Make sure you know who your student loan servicer is in case you need to reach out to them. You don’t get to choose your own loan servicer. They’re assigned to you by the Department of Education to handle billing and other services. If you have questions regarding your loan, consider contacting your loan servicer.
What Are Direct Stafford Loans?
Direct Stafford Loans are divided into two types:
Subsidized Direct Stafford Loans
These loans are only available to undergraduate students and based on financial need. The government covers the interest payments during your time at school. During your six-month grace period or if you request a deferment, the government will also cover the interest accrued on the subsidized Direct Stafford Loan .
Calculating financial need can get tricky. Once your status is officially figured out, it’s called your “demonstrated financial need,” and it’s defined as the difference between total college costs and your family’s ability to pay. Ultimately, the final number is the amount of money your family needs for you to attend college.
Unsubsidized Direct Stafford Loans
These student loans are offered to undergraduate, graduate, and professional candidates, and are not based on financial need. So if you’re keeping score at home, this is in contrast to the subsidized Direct Stafford Loans, which are available to undergraduates only and based on financial need.
For Unsubsidized Direct Stafford Loans, the government does not cover your interest while you are in school, or if you request a deferment. During your six-month grace period, interest will continue to accrue, and you’ll be responsible for paying it once the grace period ends. As we mentioned earlier, you can also opt to pay the interest during this time, which will help reduce the debt of the loan later.
As with all Direct Stafford Loans, interest rates are fixed, which means that they stay at the same rate for the entire life of the loan. This could be a good thing, but it really depends on what the interest rate is at the time of signing the loan. Interest rates go up and down, so how “good” your rate is depends on how high or low the interest rate happens to be at the time you sign up for the loan.
Direct Stafford Loan Repayment Options
Here’s where you can get a handle on the whole Direct Stafford Loan repayment situation. The most important thing to remember is this: You. Have. Options. So don’t panic if your grace period is coming to an end.
One of your options is to refinance your student loans, which may be appealing if you’re in a financially stable place. Keep in mind that you can’t directly refinance government loans. However, you can refinance your Direct Stafford Loan by taking out a new loan with a private loan company at a hopefully lower interest rate. Doing this may give you some flexible repayment options.
Before you do, know the difference between refinancing and consolidating your loans. You can distinguish them as (broadly) two different strategies: completely starting over (refinancing) as opposed to merely reconfiguring (consolidation).
Refinancing lets you pay off the loans you already have with a brand-new loan from a private lender. This can be done with both federal and private loans. When you refinance, your existing loans get paid off completely, and you put those original creditors behind you forever. The new loan from a private company may allow you to breathe easier with better interest rates and repayment terms. You can also pick the private lender with the terms that best suit your needs. Don’t be afraid to comparison shop—and don’t forget that SoFi has no prepayment penalties or origination fees!
Consolidating student loans is simply gathering up all of the loans you currently have and piling them into one loan. You can typically only consolidate federal loans, and you do so with a Direct Consolidation Loan. With a Direct Consolidation Loan, your new interest rate is the weighted average of all your interest rates combined (rounded to the nearest eighth of 1%).
Thinking of skipping a few student loan payments? Not a good idea. Your credit score may take a hit, and this could disqualify you from an opportunity to get a credit card, a car, or a mortgage. The days that pass before your loan goes into default: 270 . That may sound like a long time, but it can go by in a flash.
If you’re thinking about refinancing your Direct Stafford Loans with a private loan, you can shop around for the best rates and repayment terms, and choose the loan company that makes the most sense to you. Refinancing can be done with both federal and private loans.
Benefits of refinancing your Direct Stafford Loans could include lower monthly payments or lowering your interest rate. Your interest rate and refinancing terms will vary, based on your financial situation and credit history. If refinancing results in a lower monthly payment, you might have greater flexibility in your monthly budget, such as more savings or redirecting the additional cash to other debts.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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