Government Loans
When Payments Start
First, understand what these terms mean:
Grace Period is the time after graduation during which payments on the loan are not required.
Deferment Period is a time during which interest on the loan is not charged. If you start out owing $10,000, you will still owe $10,000 when the deferment period ends. If you don’t have a deferment period, you will owe $10,000 plus interest.
Capitalization means how often interest is added to your balance. Interest can be added from once a day to only once at the end of the grace period. Since you will pay interest on top of any interest that is capitalized, you want capitalization to happen as seldom as possible, preferably only once right before repayment starts. While it sounds complex (and is), it can have a huge impact on how much you owe. Make sure you ask about capitalization when applying for ANY loan.
Loan Limit is simply how much you are allowed to borrow.
Government loans to the student (especially if subsidized) are a great deal, but you can only borrow a very limited amount - currently just over $3,000 for your first year.
Government loans to parents offer higher limits, but payments start immediately and interest rates are higher.
Private loans are similar in terms to government student loans. They offer moderate interest rates. They offer a grace period that is actually longer than government loans. And they offer large loan limits, to ensure you can cover the Cost of Education.
Here’s how the different options stack up:
| Type of Loan |
Loan Amount Limit |
Grace Period |
Deferment |
Capitalization |
| Subsidized Government Loan to the Student |
$3,000 |
6 Months |
Until Repayment |
N/A - no interest is accruing |
| Unsubsidized Government Loan to the Student |
$3,000 |
6 Months |
None |
Once, when grace period ends |
| Government Loan to the Parent |
N/A |
60 Days |
None |
N/A - payment starts immediately |
| Private Education Loan |
$250,000 |
12 Months |
None |
Once, when grace period ends |
* CampusDoor encourages borrowers to exhaust federal loan options before applying for any private loan.
