Know Your Loan Portfolio

Loan Types

All student loans are either subsidized or unsubsidized:

subsidized loans: have no interest cost while you are in school, in grace, or during an authorised deferment period. (Subsidized Stafford Loan)

unsubsidized loans: accrue interest from the moment of disbursement. (Unsubsidized Stafford Loan, Private Loans such as Signature)

Interest Rates

Interest rates are either fixed (unchanging) for the life of the loan or variable (fluctuating) over the life of a loan, based on a formula.

Stafford Loans, for example, currently have adjusted interest rates each year although the rates are capped, never exceeding 8.25%.

Capitalization

Capitalization is the addition of interest to the principal balance of your loan and increases both the monthly payment amount and total payoff amount. Your promissory note will detail the capitalization on your loan.

Money-Saving Benefits

Find out from your lender if they offer any borrower benefits. Research the terms to know and understand your options.

Pre-Payments

You can make pre-payments, that is make additional early payments, on your loans without penalties. This will reduce the total cost of your loan. When making pre-payments be aware of the relative costs and make payments towards your unsubsidized loans with the most frequent capitalization first as they are the most expensive loans. Loan payments are generally applied first towards the interest, then the principal.