Cutting Through the Confusion of Student Loan Rules

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As we approach the beginning of another college year, more students and parents are learning about student loans. It can be overwhelming trying to understand all of the rules that apply to these loans. Fortunately, there are some helpful websites which provide explanations in easy-to-understand language. One example is the Discover® Student Loans website, which provides a side-by-side comparison of federal student loans with their private student loans. Some rules you can understand by looking at this chart include:

• The lender: This is the entity that provides you with the money you need to attend college. With federal loans, the Government is the lender. With private student loans, another entity is the lender; in this case, the lender is Discover Bank.

• The borrower: That is the person who receives the money. With federal loans, the student or the parent is the borrower. With Discover Student Loans, the student is the borrower, although a co-signer may be required.

• Loan limits: This is the maximum amount of money you can borrow. With federal direct loans, loan limits are set by the Department of Education. For federal PLUS loans and Discover Student Loans, you can borrow up to 100% of your cost of attendance, minus other financial aid you receive.

• Interest rates: This is the amount you pay to borrow money. Interest rates may remain fixed throughout your loan, or they may vary as the economy changes. Interest rates are fixed for federal student loans, while Discover offers both fixed and variable opportunities.

• Origination fees: Sometimes the lender charges you an additional flat amount for making the loan. Federal direct student loans impose an origination fee of 1.072% of the loan amount for loans that have a first disbursement made between December 1, 2013 and October 1, 2014; the origination fee for PLUS loans made between the same period is 4.288%. Discover does not charge an origination fee for its student loans.

• Rewards: These are perks that are returned to you for borrowing money from a specific lender. The federal government does not have any rewards, while Discover offers rewards for good grades.

• Deferment: This is a period where you don’t have to make any payments on your student loan, usually while you are in school. Frequently payments are deferred until six months after graduation, or less than a half-time enrollment in school. Discover does offer the option of making $25 per month payments while the student is in school.

• Repayment terms: This is the amount of time you have to repay your loan. For federal loans, the repayment term is ten years, but can be expanded to 25 years under certain circumstances. For Discover Student Loans, the standard repayment term is 15 years.

There is no need to get confused by the student loan rules. If you need more information about the college financial aid process, or would like to discuss more about federal and private student loans, contact College Financial Aid Advisors (CFAA).