The key for AmeriCorps or VISTA members is to understand how to repay your federal student loans in keeping with your values and lifestyle choices. Some members will want to use their ed award to pay down the loan principal; this means they pay the least amount possible over the life of the loan. Others will want to postpone payments for as long as possible; this means they can take a break before making new student loan payments.

To have a say in how the education award payment is processed on your loan, here are two loan concepts you need to know:

Principal: This is the amount you borrowed. The principal decreases when payments are made.

Interest: This is the money added to the principal that the lender gets to keep. For example, if you have a $1,000 loan with a 7 percent interest rate and you make no payments over the course of the year, at the end of the year, the new loan amount will be $1,070 ($1,000 principal plus $70 interest).

When you make a lump sum payment on your federal student loans (like with an education award), there are two ways that payment can get applied to your account. To illustrate this, let's take a look at two soon-to-be graduates of AmeriCorps: Lindsay and LaMarcus.


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