Student loans are a type of financial assistance given to students to help with their tuition fees. It is a need-based monetary aid, which means it is given under the demonstration of financial needs, this would naturally lead to the conclusion that students who can afford tuition would not be at the top of the list for financial aid. The repayment of student loans is affected by the AGI, that is the Adjusted Gross Income, which is an individual’s total income.
Therefore, if your AGI increases, then your student loan bill would increase, likewise if your AGI reduces, then your student loan bill would reduce, this all determines your income. How about inheritance, is it counted as income, and would it affect your student loan?
Fortunately, inheritance is not counted as income, hence it would not affect your student loans, although other factors could affect your student loan. Let’s take an in-depth look into the relationship between inheritance and student loans below.
Relationship Between Inheritance and Student Loan
Picture this, in the United States, your tax payment increases as your income increases, this is called a progressive tax. Student loans are like tax, a graduate’s tax. The repayment system set up by the government allows you to pay off loans according to your income. Therefore, if your income increases, then your bill payment also increases.
Inheritance could be described as the grey area; a lot of students wonder if this would affect their student loan. As it is not money worked for, then it cannot be described as income and would not affect your student loan.
Inheritance would not affect your eligibility for student loans either, however interest from inheritance would be counted as income.
Therefore, the general relationship between Inheritance and student loans is a common misconception that Inheritance might affect the payment plan.
Types of Student Loan
Federal Loans:
Federal loans are simply loans funded by the government, it is of two kinds, the federal parent loan, and the federal student loan. The federal student loans are paid directly to students and would be repaid by the students. However, federal parent loans are paid directly to the parents and would be repaid by them, regardless of who the beneficiary is.
Private Loans:
Private loans, unlike federal loans, are funded by private organizations, for example, credit unions, banks, and state-based organizations, Terms, and conditions of these loans are generally strict, and are more expensive than federal loans.
Difference Between Federal Student Loans, Federal Parent Loans, and Private Loans
- Repayment for federal student loans is not required up until you graduate from school, for federal parent loans, parents have the option to pay after the student graduates. However, many private loans demand repayment while in school, but some do allow you to put off payment until graduation.
- For Federal Student and Payment loans, the interest rate is fixed. However, for private loans, the interest rate varies, it can be fixed or it could be flexible.
- For Federal student loans, you may be qualified for a subsidized loan if you have financial needs. Nonetheless, loans are not subsidized for both Federal parent loans and Private loans.
- Unless for PLUS loans, students do not have to get a credit check. However, for both Federal parent loans and private loans, credit checks are mandatory.
- For all loans, interest might be nontaxable.
- Federal student and parent loans allow you to postpone or decrease your payments. On the other hand, if you are unable to keep up with the payments for your private loans, you can contact your lender to figure out some of your options.
- There are usually no prepayment penalties, but for private loans, you would need to contact your lender to make sure.
- For both Federal students and Parent loans, you might be qualified for loan remission. However, private loan organizations do not proffer loan forgiveness.
Loan Repayment Methods in The United States
Graduated Repayment:
This is for those who anticipate an increment in income soon. It allows you to start small with payments, then it increases every two years. The sum that incurs between each payment would not be higher than your monthly payments. Therefore, this is a convenient payment plan for individuals with steady income growth.
Standard Repayment:
With this plan, you would have up to 10 years to complete payment of a fixed amount each month, which enables you to complete your loan faster and pay little interest. If you can cope with larger monthly payments, then this plan is for you.
Pay as You Earn:
The PAYE repayment plan is offered to students, which allows them to limit their payments to ten percent of disposable income which makes the payment significantly lower than Income-Based Repayment plans.
Extended Repayment:
This plan gives you 25 years to repay your loan, to be eligible, you need to have over thirty thousand dollars in Direct Loan Debt. This payment plan gives you two options, fixed payment and graduated payments. As mentioned above, graduated payments allow you to start small, while fixed payments are the same amount each month.
Income-Based Repayment Plan:
Under this plan, monthly remittance is estimated based on your monthly earnings. To this effect, if your monthly income is high, then your monthly payment would be high and vice versa.
What Can Affect Student Loans
The main factor that could affect student loans is income, it determines the monthly payment and the payment plan organized. Occupation could also affect student loans by determining if you’re eligible for loan forgiveness. If you are a civil servant, teacher (for five consecutive years), or in the military, you might be eligible for loan forgiveness.
These are the 5 major payment plans, apart from the revised pay as you earn and other options such as deferment, consolidation, forbearance, delinquency, and default. In summary, your student loan payments are majorly affected by your income and not your inheritance.
Frequently Asked Questions
- Is it easy to get a student loan?
Yes, it is, but always lookout for the best option.
- How can I get a student loan without the help of my parents?
As a minor, you cannot sign any contract. So, if you are below 18, you cannot get a student loan without the help of your parents.
- Is student loan secure?
No, you do not need to offer up collateral in case you default on your loan.
- Are student loans fixed?
Unlike private loans, federal loans are fixed.
