🎓 Prepared by students from Boğaziçi University

What are Student Loan Types?

Student loans come in two main types: federal loans (government-backed) and private loans (from banks/lenders). Each has different interest rates, repayment flexibility, and borrower protections.

Short answer

Federal student loans are government-funded with fixed rates and flexible repayment; private loans come from banks at variable rates with stricter repayment terms.

Student Loan Repayment Timeline

1
In School
Loans accrue interest or are subsidized (no interest).
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2
6-Month Grace
No payments required after graduation (federal loans).
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3
Repayment Begins
Choose income-driven, standard, or graduated plan.
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4
10–25 Years
Monthly payments; remaining balance forgiven after term.

Step-by-step worked examples

Federal loan $30,000 at 5% over 10 years. Estimate monthly payment.

Use standard repayment formula or online calculator.
Approx: $30,000 ÷ 120 months = $250/month + interest.
With 5% interest, closer to $283/month.

Income-driven repayment: $60,000 income, $25,000 loan. Estimated payment?

Income-Based Repayment (IBR): 10% of discretionary income.
Discretionary = $60,000 − $23,425 (federal poverty line) = $36,575.
Payment ≈ 10% × $36,575 ÷ 12 = ~$304/month.

Private loan $20,000 at 8% variable, 7-year term.

Monthly rate = 8% ÷ 12 = 0.667%.
Monthly payment ≈ $20,000 × 0.00963 = ~$193/month (simplified).

Flashcards

Quick quiz

Q1.Which loan type has fixed interest rates?

Correct answer: B. Federal loans lock in fixed rates; private loans often use variable rates.

Q2.How many payments for Public Service Loan Forgiveness?

Correct answer: C. 120 on-time payments (10 years) working for a qualifying employer.

Q3.Income-Based Repayment caps payment at what % of discretionary income?

Correct answer: B. IBR limits payments to 10% of discretionary income (older PAYE is 20%).

Q4.Private student loans typically offer…

Correct answer: D. Private loans usually charge more and lack federal protections.

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Common mistakes

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Thinking all student loans are the same. — Correct: Federal and private loans differ in rate, forgiveness, and flexibility.

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Skipping the grace period without deferring. — Correct: Use the 6-month grace to plan your first payment strategy.

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Only paying interest during school. — Correct: Paying principal early saves thousands in interest over 10 years.

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Ignoring income-driven repayment options. — Correct: Income-driven plans can lower monthly costs if you earn less initially.

FAQ

What are the main types of student loans?

Federal (subsidized, unsubsidized, PLUS) and private loans. Federal loans are safer with fixed rates and forgiveness options.

What is income-driven repayment?

Plans (IBR, PAYE, etc.) that cap payments at a % of discretionary income; remaining balance forgiven after 20–25 years.

How long is the student loan grace period?

6 months for federal loans after graduation. Private loans may not offer a grace period.

Can I pay off student loans early without penalty?

Yes — federal and most private loans allow early repayment without penalty; extra payments reduce interest.