In 2015, 870,000 persons received benefits under the Federal Training Assistance Act (Federal financial aid) in Germany. The Federal financial aid offers students the opportunity to bear a large part of the costs of their studies. But normally it is only half awarded as a grant. The other half you have to pay back as a student after graduation. Thus, many students start with a small debt mountain into professional life. But how can repayment be achieved as cheaply as possible, and how can a loan for Federal financial aid repayment help? This guide will answer the most important questions about loans for Federal financial aid repayment.
Federal financial aid – a great help in your studies
The Federal financial aid is a grant from the state, which you receive half as a grant and half as a loan. Depending on the personal situation and the income of the parents, the demand rates for the Federal financial aid are eliminated. The following table shows the maximum requirement rates in more detail:
|Type of training||Residence with the parents||Own residence||KV / PV surcharge|
|Vocational school classes (at least 2 years plus professional qualification)||231 euros||504 euros||86 euros|
|Evening primary and evening secondary schools, vocational schools, technical secondary schools (prerequisite: vocational training)||418 euros||622 euros||86 euros|
|Evening grammar school, colleges, technical school classes (prerequisite: vocational training)||424 euros||622 euros||86 euros|
|Higher technical schools, academies, colleges||451 euros||649 euros||86 euros|
Table 1: Maximum subsidy rates for Federal financial aid, Source: Federal financial aid.de
The maximum rate for the Federal financial aid is € 649 per month for students at the university. Depending on requirements, the health insurance and long-term care insurance supplement of a total of 86 euros per month is added. Even if the financial resources are not necessarily sufficient to finance the entire study period, it will be much easier on this path.
Federal financial aid debts – a high mortgage for the future
Even if the benefits of Federal financial aid are a great help in the study, the resulting debt mountain can be quite frustrating. An example should clarify this a little more precisely:
After six semesters (standard period of study), you have successfully completed your Bachelor’s degree and completed it with a Master’s program over four semesters. During this time, you received a Federal financial aid rate over 300 euros. This results in the following amount of debt:
|Federal financial aid per month||300 Euro|
|Federal financial aid per year||3,600 euros|
|Federal financial aid after 5 years||18,000 euros|
|Debt to the professional start (1/2)||9,000 euros|
|Actually repay||9,000 euros|
Table 2: Example calculation for a Federal financial aid loan
In this example, you would have to pay a debt of 9,000 euros after completing your studies. According to §17 (2) of the Federal financial aid, the repayment amount for subsidies within the maximum funding period is limited to a maximum of € 10,000. So if you have received a higher Federal financial aid rate, which gives you a higher loan debt than 10,000 euros, the repayment amount is capped accordingly. Nevertheless, it is not exactly a good feeling to start with 10,000 euros of debt, especially in the phase of starting a career.
How is the Federal financial aid repayment normally regulated?
The Federal financial aid is repayable as an interest-free loan, whereby you can take up to 20 years. The minimum rate is € 105 per month and you do not have to start repaying until 5 years after the end of the maximum funding period. In addition, there are some special rules regarding your future income:
- If your income is later not higher than 1,070 euros per month, the loan repayment can be suspended on application.
- The spouse increases the income limit by 570 euros per month.
- Every child who is not in education raises the limit again by 520 euros.
If you tackle the repayment of the above calculated 10,000 euros with the minimum amount of 105 euros per month, you would be debt-free only after about 8 years !
Credit for the Federal financial aid repayment – is it worth it?
At first glance, the terms of the Federal financial aid loan are very tempting. You do not have to pay any interest, you have a qualifying period of 5 years after the end of the promotion and you can take 20 years to complete it. Nevertheless, it can be worthwhile to take out a loan for Federal financial aid repayment. The reason lies in further special rules for the repayment, which the legislator has established. This applies above all to the early repayment in one piece. The corresponding deductions are shown in the following table:
Table 3: Discount depending on the repayment amount
So, if you have a loan debt of 9,000 euros, as in the example above, you can reduce the loan amount to 6,615 euros by immediately repaying the loan and thus save 26.5%. In such cases, it is worthwhile to take out a loan for Federal financial aid repayment in order to be able to benefit from the estate.
What is the potential savings through a loan for Federal financial aid repayment?
The savings potential of a Federal financial aid repayment loan is always calculated as follows:
|Federal financial aid-Nachlass – Interest on the loan = saving|
In the example above, for a loan with an interest rate of 5.00% per annum and a term of 2 years, the following would look like this:
|loan amount||6,615 euros|
|Effective interest rate||5.00% pa|
|running time||2 years|
|repayment rate||289.88 euros|
|interest costs||342.13 euros|
Table 4: Costs of financing
If this is now used in the above formula, this results in a saving of:
2,385 euros – 342.13 euros = 2,042.87 euros
Is a loan for Federal financial aid repayment worthwhile in any case?
In principle, such a rescheduling is always worthwhile if the interest cost of a loan is lower than the discount due to the immediate Federal financial aid repayment. Unfortunately, there are also situations in which the estate has no effect. This is always the case if the remaining loan debt, even after deduction of the estate, exceeds € 10,000. The maximum repayment amount is capped at 10,000 euros anyway. Some examples are intended to illustrate this:
|loan debt||Payment amount after deduction of the discount||To pay in fact (by capping)|
|17,000 euros||10,200 euros||10,000 euros|
|20,500 euros||11,275 euros||10,000 euros|
|23,000 euros||11,730 euros||10,000 euros|
Table 5: Examples of the cap on the Federal financial aid repayment
Credit for Federal financial aid additional payment – what should be considered?
Since the savings potential of such a rescheduling sometimes depends on the terms of the loan, you should pay particular attention to these points when selecting loans:
Ensure the lowest possible interest rates
As with any loan, the interest rates should be as low as possible for loans for the Federal financial aid repayment. For this purpose, a credit comparison is very helpful. This probes the offers on the market and gives you a good overview. Thus, you have the opportunity at the end to easily decide on the best possible credit for Federal financial aid repayment. How much money can already be saved by moderate interest rate differentials, will show a small example:
|Credit I – favorable interest rate segment||Credit II – expensive interest rate segment|
|loan amount||6,500 euros||6,500 euros|
|Effective interest rate||3.49% pa||7.99% pa|
|running time||3 years||3 years|
|Repayment rate (per month)||190.28 euros||202.82 euros|
|Interest costs (term)||349.99 euros||801.61 euros|
Table 6: Sample calculation of savings potential through a credit comparison
Runtime as low as possible
If possible, you should set the term of your Federal financial aid repayment loan as low as possible. Beaches, which in turn minds toрlice, will reduce the Also a small sample calculation for this:
|Credit I – short term||Credit II – long term|
|loan amount||6,500 euros||6,500 euros|
|Effective interest rate||4.59% pa||4.59% pa|
|running time||2 years||4 years|
|Repayment rate (per month)||283.70 euros||148.21 euros|
|Interest costs (term)||308.79 euros||614.15 euros|
Table 7: Example calculation for saving due to a short duration
Special repayments and installment breaks – flexible design options
Often, features such as free special repayments or a free rate break are referred to as additional services. They fulfill a really important purpose in certain situations:
- Special repayments: If you receive money shortly after the loan is closed, you can immediately repay part of the loan with free special repayments. This shortens the term and thus further reduces interest costs.
- Rate break: A free rate break per year can be helpful especially in financially difficult situations. It relieves the own finances very much, if the credit rate does not have to be paid once. However, a break is only granted if there are otherwise no payment difficulties.
Remaining debt insurance – often not useful for small loans
Many banks provide not only a loan but also the possibility of a residual debt insurance, which takes over in case of unemployment or disability, the installments. However, this is not worthwhile in many cases. Especially with smaller loans, the costs are out of all proportion to the benefit, because you could somehow lift a small loan even if you are unemployed or unable to work.
Note: The cost of a residual debt insurance is not included in the annual percentage rate. According to §6 Abs. 4 Nr. 2 of the Price Indication Ordinance (PAngV), insurances that are not explicitly part of the credit agreement need not be implemented as a cost in the annual percentage rate.
Optimize your own credit rating and provide collateral
Many loans are now issued with credit-based interest rates. Thus, your income situation, your status as a worker and also your credit bureau scoring not only have an influence on the lending, but also on the conditions. However, there are a few ways to improve the terms of a loan:
- Second borrower: With another borrower, banks may have the opportunity to rank you better in terms of your credit rating. If the second borrower (often the spouse) has his own sufficient income above the seizure limit, two persons are liable for the repayment. This sometimes improves the conditions significantly.
- Guarantee: An enforceable guarantee works very much like the second borrower. Although the guarantor is not a borrower himself, he must be liable for any default on your part.
Although there are still other collateral, but banks refuse for small loans possible hedges such as land charges. The associated costs are also disproportionate to the security character.
Benefits according to the Federal financial aid are a great help during the study period as they take financial pressure on students. However, if you have completed your studies, you start with a not insignificant amount of debt in your professional life. Although they have a waiting period of 5 years, they have to pay off the loan afterwards. Fortunately, however, the state grants attractive discounts if the loan is paid in full immediately. For this reason, it can sometimes be worth it to take out a loan for Federal financial aid repayment. But here, too, a close look is required. This rescheduling is not always worthwhile. In addition, it is important that you use a provider comparison to help keep costs low.