We’re here to help you understand student loans as a tool to help you pay for college. Whether or not you choose to borrow money to pay for college, we want to make sure you understand how student loans work so you can make the best decisions for your educational future.
What do I need to know about loans?
Student loans aren’t “good” or “bad”—they’re simply a tool that’s available to help you pay your college tuition, fees, and expenses. However, it’s important to make good decisions and choose the right resources when paying for college.
- If you’re planning to make use of student loans, our biggest piece of advice is to borrow only as much as you need for each year.
- You’ll be offered the maximum amount of student loans you can receive each year, but it’s your choice whether or not to accept the loan(s) and how much loan money to borrow. Once again: our advice is to borrow only as much as you need.
- How do I decide how much to borrow? This question isn’t easy to answer, as everyone’s situation is unique. However, it’s important to know that the loan amount you accept can be updated if your situation changes. Did you borrow too little of the offered amount? You can request an increase. Did you receive a scholarship, and now your loan amount is too high? You can request a decrease. It’s important to know that you can make changes to your loans based on changes in your situation.
- Federal student loans are awarded by the Office of Financial Aid and Scholarships—but you must complete your FAFSA first! The FAFSA is the application for federal financial aid.
- If you accept your student loans, you’ll be asked to complete the Federal Loan Entrance Counseling module and Master Promissory Note (MPN). Both of these requirements are important—they’ll help you understand all of your rights and responsibilities as a student loan borrower. Please take the time to read these documents carefully.
Are student loans a bad idea for me?
If we all had the choice between a scholarship or a student loan, we’d all choose the scholarship! However, even with scholarships and/or grant aid, taking out student loans to pay for college might still be necessary.
As you consider whether or not to take out loans, keep in mind the future earnings potential of a college degree. According to Georgetown University’s Center on Education and the Workforce report The College Payoff, a bachelor’s degree is worth $2.8 million on average over a lifetime of earning and allows you to earn 84% more than another person with only a high school diploma.
- The most recent data from UNCG’s Office of Institutional Research and Enterprise Data Management shows that UNCG students carry an average of $23,359 in federal student loan debt. According to Forbes, the national average individual student loan debt is $28,950.
- If you’re able to borrow less than the offered amount (or even avoid taking out loans altogether) in any given year, you’ll end up borrowing much less than the average student.
- Any year in which you borrow less means even if you have to borrow more in a future year, you can still end up borrowing less overall. Federal Student Aid’s Loan Simulator tool will help you see what your future payments might look like based on the amount of student loans you think you might need to take out.
- Loans aren’t “good” or “bad”—they’re a tool to help pay for your degree. A student loan might be a critical choice you need to make in order to meet a goal of a completed degree.
- Don’t buy into the simplified narrative of student loans as a bad thing, and don’t focus on examples of “extreme” borrowing—six or seven figures in loan debt. The majority of people with large student loan debt are doctors and lawyers with expensive professional degrees who’ll be able to repay their loans with little difficulty. If you borrow only as much as you need when you accept your student loan offer, you won’t fall into the trap of a large loan balance.
- Sometimes student loans are labeled as a bad thing by people who borrow money for other things in their life. It’s not uncommon for people to borrow money to buy a home, or a car, or even to finance a vacation. Every time you use a credit card to purchase something, you’re borrowing money from the bank that issued you the card. For a life-changing investment like a college degree, as an investment in your future earnings potential, a student loan may be a prudent choice.
Is borrowing the right choice?
This question is different for each student each academic year. In some years, you may not need to borrow any student loans, as your costs may be lower, or you may have other resources available to pay your tuition. In other years, you may need to borrow the full amount of student loans offered to you due to a changed work situation, or increased living expenses. The choices you have to make about taking out student loans will likely be different each year.
Check out the potential earnings in your career path to get a sense of what you’ll earn after you’ve graduated. When considering student loans, one approach to borrowing is to not borrow more than the average first-year salary you expect to earn based on your major. If you do decide to take out student loans, make sure to review your financial aid award and your student bill in UNCGenie to ensure you’re aware of all your financial obligations and the financial aid available to you. And if you have any questions, we’re always here to help!
Types of Student Loans
There are many types of financial aid available to UNC Greensboro students looking for assistance with the costs of college. Aid can come from a variety of sources that may or may not require a FAFSA. UNCG recommends that all students file a FAFSA every year to maximize their eligibility for most types of aid. You can learn more about types of student loans here.
What’s the difference between federal and private student loans?
Most students are eligible for loans to help with the cost of college, but there are key differences between federal and private student loans.
Federal student loans are issued by the government. They’re not based on your credit score, but instead on your grade level and dependency status. To qualify for federal student loans, you must complete a FAFSA (Free Application for Federal Student Aid).
- Most undergraduate students will be eligible for a combination of direct Subsidized and Unsubsidized loans.
- Subsidized loans don’t gain interest while you’re in school; interest begins accruing once you’re in repayment, generally six months after your last day of full-time attendance.
- Unsubsidized loans gain interest from the time they’re disbursed.
- The interest rate for student loans is set yearly by the Department of Education and remains fixed for the life of the loan.
Additional information on yearly and aggregate federal direct loan limits can be found here under the subtopic Loan Limits.
Private or alternative student loans are made by private entities such as banks, credit unions, or other private lenders. Private loans don’t require a FAFSA and are credit-based. They should only be used as a last option to bridge the gap between the cost of attendance and the amount of federal, state, and institutional aid you’re awarded.
- Private loans will typically have higher interest rates and stricter repayment terms, which may mean they’re more expensive than federal loans, and must be repaid sooner.
- Private loans also require you to have a good credit history and/or a co-signer.
For more information, read our article on Spartan Central under Private Loans.
You can also check out this video on student loans to learn more about the differences between federal and private loans.
You may also be eligible for additional federal loan programs such as Federal Direct Plus Loans.
Parents of undergraduate students may apply for a low-interest Federal Direct PLUS loan to cover additional educational expenses. PLUS loans are credit-based and require an additional application. However, if your parent is denied a PLUS loan, you become eligible for additional Unsubsidized loans up to the independent student loan limits.
Graduate students may also be eligible for federal loan programs such as Federal Direct Unsubsidized Loans and Graduate Plus Loans. We’ve created videos for you with more information on researching and applying for federal and private loans as a graduate student.
How do I qualify for loans? How much can I borrow?
To be eligible for federal student loans, you must:
- Complete the FAFSA each aid year.
- Not be in default with any prior student loans.
- Meet citizenship requirements.
- Be enrolled at least half-time in a degree-seeking program and meet UNCG SAP requirements.
You can read more about general financial aid eligibility requirements here and here.
It’s important to know if you’re close to or meeting annual or aggregate loan limits. These limits can also impact your loan eligibility. Annual loan limits are based on grade level and dependency status. Aggregate loan limits are based on degree type. Click on Loan limits here to learn more.
Student loans are generally like any other type of loan and have to be repaid. There are typically provisions and protections in place to help make repayment less stressful.
When do I start paying back my loans?
Most students begin repaying their federal loans six months after graduating from college. This six-month span is called the grace period when no payments are due. During this time, you’re finding work, getting a start on your career, and establishing your ability to start repaying your student loans.
There are two other situations when the clock starts on your six-month grace period and loan repayment may begin:
- You’re still in school, but you drop below half-time enrollment.
- You leave school before completing your degree.
If you decide to take a semester or a year off, your loan repayment period begins after the six-month grace period ends. If you resume half-time enrollment before the six-month period is over, you’re no longer in repayment, and you’ll receive the full six-month grace period when you graduate, drop below half-time, or stop attending.
There’s currently a student loan repayment pause in effect through December 31, 2022. This means that borrowers in repayment are not required to make payments on their loans and interest rates have been reduced to 0%. This pause began on March 13, 2020.
More information about the student loan repayment pause.
- What’s the current status of the program? There’s been no update on whether the pause will be extended beyond Aug 31, 2022.
- How can you take advantage of the pause? No action is required on your part—it happens automatically. You can view your loan status on the FSA Dashboard when you log in to your account at studentaid.gov.
- I’m still in school. What about my loans and interest rates? The interest rate on all your loans held by the Department of Education (ED-held) has been temporarily lowered to 0%, even while you’re in school. This 0% interest rate began on March 13, 2020. After Aug. 31, 2022, your regular loan interest rates will apply.
What are my repayment options?
There are numerous repayment plans currently available. When you begin repayment, your loan servicer may assign you to a standard plan that requires a fixed payment amount, usually for 10 years. However, you may select a different plan based on your specific financial situation. Use the Loan Simulator to determine which plans you’re eligible to use, then contact your loan servicer to discuss changes, if necessary.
Click here to find out more about these repayment plans:
- Standard Repayment Plan
- Extended Repayment Plan
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Income-Sensitive Repayment Plan
What is loan consolidation?
Consolidation is the process of combining multiple federal student loans into one loan with a fixed interest rate. This gives you a single monthly payment instead of multiple payments across all your individual loans. The interest rate can often be lower, too, as it’s based on the average rates of the loans being consolidated. Loan consolidation can also give you access to additional loan repayment plans and forgiveness programs.
What are the pros and cons of consolidation?
- One payment.
- Fixed interest rate.
- Possible lower payments.
- Access to income-driven repayment plans and Public Service Loan Forgiveness.
- Increased repayment period: can range from 10–30 years.
- A longer repayment period means you could end up paying more in interest over the life of the loan.
- Accrued interest is added to the principal loan balance.
- You could lose borrower benefits such as interest rate discounts, rebates, or cancellation benefits.
As with any decision involving financial aid, learn more about whether consolidation is right for you.
What are Deferment and Forbearance?
Deferment and forbearance allow you to temporarily stop making payments on your student loans, or to temporarily reduce your monthly payment amount for a specified period.
Deferment is a temporary postponement of payments that can happen if:
- You’re enrolled at least half-time.
- You’re a parent who received a Direct PLUS Loan or an FFEL PLUS Loan, while the student for whom you obtained the loan is enrolled at least half-time.
- You’re unemployed or unable to find full-time employment, for up to three years.
- You’re experiencing economic hardship, or serving in the Peace Corps, for up to three years.
- You’re on active-duty military service in connection with a war, military operation, or national emergency.
During deferment, interest generally doesn’t accrue on Direct Subsidized Loans, the subsidized portion of Direct Consolidation Loans, Subsidized Federal Stafford Loans, the subsidized portion of FFEL Consolidation Loans, and Federal Perkins Loans. All other federal student loans (such as Direct Unsubsidized Loans and PLUS Loans) that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).
Forbearance is a period during which your monthly loan payments are temporarily suspended or reduced due to certain types of financial hardships. You can request a general forbearance if you’re temporarily unable to make your scheduled monthly loan payments due to:
- Financial difficulties.
- Medical expenses.
- Changes in employment.
- Other reasons your loan servicer approves.
During forbearance, principal payments are postponed but interest continues to accrue. Any unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), which will increase the total amount you owe. Studentaid.gov has more information on deferment, forbearance, and other ways to manage your loans when you need additional help.
What does default mean? What are the consequences if I default?
Defaulting on your student loan(s) can have very serious implications for your personal credit score—which can have major impacts in many areas of your life for years to come—and your ability to access other federal aid resources and some state funding. Your tax refunds or your wages could be garnished. Defaulting could even impact your Social Security benefits.
- If you fail to make your loan payments on time or miss payments, your loan becomes delinquent.
- If you’re more than 90 days delinquent on your student loan payment, you’ll be reported to the national credit bureaus.
- Failure to bring your loan into good standing can cause your loan to go into default.
- For Federal Direct Loans, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months).
Consequences of defaulting
If your student loans go into default:
- The entire unpaid balance of your loan(s) and any interest you owe becomes immediately due.
- You can no longer receive deferment or forbearance.
- You’ll lose eligibility for additional federal student aid.
- The default will be reported to credit bureaus, damaging your credit rating, and affecting your ability to buy a car or house, or to get a credit card, among many other serious impacts. It can even make insurance more expensive.
- Your tax refunds and federal benefit payments (Social Security) may be withheld.
- Your wages will be garnished.
- Your loan holder can take you to court.
- You may not be able to purchase or sell assets such as real estate.
- It may take years to reestablish a good credit record.
- Your school may withhold your academic transcript until your defaulted student loan is satisfied.
This is critical: contact your loan servicer right away if you need assistance! They cannot help you if you don’t reach out to them and may be willing to work with you on a solution. Learn more about steps you can take to avoid going into default, and if you do go into default, how to get out again.
Are there opportunities to have my loans forgiven?
Loan forgiveness means your eligible student loans may be forgiven, canceled, or discharged, either in part or entirely, if you qualify for a forgiveness program. Not everyone will qualify for these programs.
The two main forgiveness programs are:
- Public Service Loan Forgiveness:
- Requires you to be employed by a government or not-for-profit organization.
- Forgives your remaining student loan balance after making 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
- Teacher Loan Forgiveness:
- Requires you to teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency.
- May qualify you for forgiveness of up to $17,500 on your Direct Loan or FFEL Program loans, if you’re eligible.
You may not receive a benefit for the same qualifying payments or period of service for Teacher Loan Forgiveness and Public Service Loan Forgiveness.
In addition to the PSLF and TLF programs, there are a number of other instances that may qualify you for loan forgiveness. Studentaid.gov has more information on these. You must continue to make on-time payments even if loan forgiveness is on the horizon for you.
Federal student loans may be discharged or canceled.
Federal student loans may be discharged or canceled under certain conditions:
- Closed School Discharge
- Perkins Loan Cancellation and Discharge
- Total and Permanent Disability Discharge
- Discharge Due to Death
- Discharge in Bankruptcy (in rare cases)
- Borrower Defense to Repayment
- False Certification Discharge
- Unpaid Refund Discharge
- Forgery Discharge
Where can I get more information?
We want you to have as much information as possible about these important financial decisions. Here’s a list of additional resources, including videos and calculators, to help you plan financially for college:
- Video: How much money should I be willing to borrow for school?
- Video: Responsible Borrowing
- The College Foundation of North Carolina has a wealth of great resources to help you plan and pay for college.
- College Foundation also offers 7 Essential Financial Aid Calculators to help you figure out how to make the numbers work for you.
- Want more information on federal direct student loans? The Department of Education has everything you need to know.