Types of Federal Student Loans
All newly obtained federal student loans are processed via the William D. Ford Federal Direct Loan Program. Parents and students who meet the requirements can borrow directly from the Department of Education, and the money they borrow can be utilized at any approved school.
Depending on your educational background and loan amount, you may be eligible for one of several Direct Loan variations, each with a different interest rate and set of fees.
| Loan | Eligible Students | |
| Direct Subsidized | Undergraduates with financial need | Learn more |
| Direct Unsubsidized | Undergraduates, graduates, and professional students | Learn more |
| Parent PLUS | Parents of dependent undergraduate students with no adverse credit history | Learn more |
| Grad PLUS | Graduate and professional students with no adverse credit history | Learn more |
| Consolidation Loans | Most borrowers with federal student loans | Learn more |
To learn more about how student loans operate, see our guide on loan repayment.
- Eligible Students: Undergraduate Students with Financial Need
- Interest Rate for the Current School Year:
- Origination Fee:
- Grace Period:
One kind of Stafford loan is called a “direct subsidised loan,” which is intended for undergraduate students with demonstrable financial need as shown by their FAFSA.
With this kind of Direct Loan, the cost of tuition and other associated fees are used by the school to calculate the amount of each loan for each student. However, the amount awarded via a Directly Sponsored Loan cannot surpass each student’s entire need for financial assistance.
The government covers the interest on Directly Subsidized Loans while you are enrolled in classes at least half-time, during your grace period, and during any deferment period.
Because of this, subsidized federal student loans are the most advantageous kind available, and you should always take advantage of them to the fullest before switching to unsubsidized or private loans.
- Eligible Students: Undergraduate, Graduate, and Professional Students
- Interest Rates for Undergraduate and Graduate Students in the Current School Year
- Origination Fee:
- Grace Period:
Unlike subsidized loans, which require proof of financial need to be approved, direct unsubsidized loans do not have an interest accrual period and do not pay interest while the borrower is enrolled in school.
Interest will accrue during these times if you don’t make payments on it.
Up to the federal student loan limits, the amount you can borrow is determined by deducting other financial aid from the total cost of attendance. But your current school still gets to decide on this amount.
- Parents of dependent undergraduate students who have never had a negative credit history are eligible students.
- Interest Rate for the Current School Year:
- Origination Fee:
- Grace Period: Usually none, but parents may ask for a six-month postponement after their child graduates from school.
Parent PLUS Loans are a particular kind of PLUS Loan intended for parents of dependent undergraduate students enrolled at least half-time in qualifying institutions. In certain situations, the borrower may be the stepparent, biological parent, or adoptive parent. Guardians are not eligible.
In contrast to other federal student loans, Parent PLUS Loans are subject to a credit check by the government to ensure that no negative credit history, such as bankruptcy, exists.
Parent PLUS Loans are disbursed to the parent after the student’s school receives the first payment. Usually, payments must be made soon after the loan proceeds are received.
In our Student Loans for Parents Guide, you can contrast Parent PLUS Loans with alternative programs.
- Graduate and professional students without a history of adverse credit are eligible.
- Interest Rate for the Current School Year:
- Origination Fee:
- Grace Period: 6 Months After Leaving School
Graduate students may be eligible for a Grad PLUS Loan if they are enrolled in classes at least half-time. Graduate students must be enrolled in courses that result in a professional certificate or an advanced degree in order to be eligible.
In order to be eligible for financial aid from the Department of Education, borrowers must also fulfill the other general eligibility requirements. Grad PLUS Loans also require a credit check.
Parent PLUS loans must be repaid in full while the borrower is enrolled in school; Grad PLUS loans do not. Alternatively, graduate students may choose to postpone payments for a maximum of six months following graduation or if they no longer qualify for half-time status while enrolled at least half-time in classes.
Grad students should use Grad PLUS Loans only after they have exhausted their options on Direct Unsubsidized Loans due to their lower interest rates.
Make sure to weigh the pros and cons of a Grad PLUS Loan against other graduate student loan options before applying.
- Eligible Students: Most Borrowers with Federal Student Loans
- Interest Rate for the Current Academic Year: Consolidated federal loans are weighted averages, rounded to the nearest eighth of a percentage point.
- Fee: None
- Grace Period: 60 Days Following Loan Disbursement (If any loans are within this grace period, you can ask to postpone repayment until the end of the grace period)
Students who wish to consolidate multiple federal student loans into one can apply for direct consolidation loans.
By doing this, borrowers simplify their loan repayment into a single monthly payment, and they may later be eligible for alternative repayment plans or loan forgiveness.
There is no need for a cosigner or credit check when consolidating federal student loans, but the total interest rate may be a little higher than if the loans were kept apart.
Keep in mind that parents who have Parent PLUS loans are not allowed to combine them with the federal student loans that belong to their kids. .
Federal Perkins Loan Program
Perkins Loans, which were low-interest federal student loans available to both undergraduate and graduate students with exceptional financial need, used to be the other major category of federal student loans. These loans stopped being offered on September 30, 2017.
Federal Student Loan Borrowing Limits
Limits are imposed on each type of federal student loan according to the student’s status (dependent or independent), year of attendance, and other forms of financial aid received for their education. Here’s a quick overview:
- First-year undergraduate students: Independent students are permitted to borrow up to the amount of subsidized loans, while dependent students are limited to such amounts.
- Second-year undergraduate students: Independent students are permitted to borrow up to the amount of subsidized loans, while dependent students are limited to such amounts.
- Undergraduate Students in Their Third Year and Beyond: Dependent students may borrow up to a maximum of subsidized loans; independent students may borrow up to a maximum of subsidized loans.
- Graduate and Professional Students – of unsubsidized only
For dependent students, the total loan limit is limited to the amount that is subsidized. Graduate and professional students may borrow up to the maximum amount of subsidized loans, while independent undergraduate students may only borrow up to that amount.
Private loans can cover the difference if your federal student loan limit has been reached. To get started, read our guide to the top private student loans.
Qualifying for Federal Student Loans
To qualify for federal student loans, there are fundamental eligibility requirements that must be met, including:
- Be a U.S. citizen or eligible non-citizen
- Have a valid Social Security number
- Be enrolled, or accepted for enrollment, at least half-time, in a degree or certificate program that qualifies you for
- Maintain academic progress in college
- Demonstrate your eligibility for a career school or college degree.
- Are not in default on existing federal student loans
Federal student loans are available to anyone enrolled in school as long as the eligibility requirements are met and the maximum loan amounts are not yet reached.
There are situations where you might not be eligible for federal student loans. In the event that regaining eligibility for federal student loans is not a practical solution, private student loans might be the best alternative.
Deciding How Much to Borrow
Although it is always possible to take out all of the federal student loans that are available, it is not advised if you have other options for funding your education, such as grants, scholarships, or savings.
It’s important to remember that student loans can be used for more than just tuition; they can also be used for housing and living expenses.
Figure Out the Net Cost of College
First, figure out how much it will cost you to attend the school of your choice.
As a general rule, figure out the net cost of attending college as well as the current amount of income and savings, then deduct what you have from the net price.
Borrowing 125 percent of this difference is a good way for most parents and students to estimate how much they will need in student loans. Because all colleges and universities eligible for federal financial aid are required to offer an online calculator through their websites, figuring out the net cost of college is made easier.
A portion of the computation is additionally derived from the data in your federal student aid package. Each applicant receives a financial aid package after completing the FAFSA.
You will receive information in that package about the various forms of aid available, such as Pell Grants, federal work-study programs, federal student loans, supplemental education opportunity grants, and scholarships.
You can assess what you might need to borrow to pay for your education based on the unmet need.
Consider How You Will Repay Your Loans
While these computations are useful, you also need to understand your financial responsibility on the other side of the equation.
You must be able to repay your federal student loans after you graduate, so it’s critical to keep track of the total amount you borrowed.
Be sure to research your first- and second-year income potential in your selected career field to determine what you can anticipate earning. This resource from the National Association of Colleges and Employers offers a first look at expected starting salaries broken out by industry.
You can make advance plans for your eventual repayment of federal student loans once you are aware of your anticipated future salary. Estimate your monthly repayment obligation here to help you keep your total student loan debt within a manageable range.
How to Take Out Federal Student Loans
The process of obtaining federal student loans is rather straightforward, but it starts with being aware of the aforementioned eligibility requirements. You also need to be aware of your school’s eligibility for federal student loans from students.
1) Figure Out if Your College(s) of Choice Are Eligible for Federal Aid
Higher education institutions or postsecondary vocational schools that fulfill certain criteria can be considered eligible schools.
The most important feature of an eligible school is that it provides a degree or certificate program that qualifies the student for gainful employment.
Details about what is required from eligible schools to participate in the federal student aid program can be found here.
2) Fill Out the FAFSA
Once you have determined you are enrolled or plan to enroll in an eligible school, you need to complete the Free Application for Federal Student Aid, or the FAFSA. The FAFSA is most easily filled out online, and it requires you to create an FSA ID if you do not already have one.
After logging onto the FAFSA website, you can choose if you are applying as a parent or a student and the academic year you want to apply for. Then, you just need to fill out the necessary information. The student demographic section of the FAFSA opens with the relevant personal information that identifies the student.
Along with questions about dependency status and parent demographic data, if applicable, you are also asked to enter the school where you would like the application to be sent.
Finally, specific financial information is requested, including tax return data.
After filling out the form, all you have to do is sign it and submit it. If you would rather, you can also submit the FAFSA on paper.
3) Review Your Award Letter
Upon submitting the FAFSA, the information in the application is sent to the school(s) of choice and its financial aid office determines the amount of federal student aid you may receive.
Additionally, data is forwarded to the Department of Education, which then provides the Student Aid Report (SAR). That is not a comprehensive report detailing the amount of aid you will receive; rather, it is a summary of the information that was included in the FAFSA. Nonetheless, it does let you check for mistakes along the route.
The school will send you an award letter outlining the amounts of your federal student aid after it has calculated it. It could take some time between submitting the FAFSA and learning about the awards because each school has a different policy regarding when to send out award letters.
Decide how much aid and from which school you want to accept after receiving the award letter, and then let the financial aid office at that school know what you want to do. They will usually specify a deadline in the award letter, so make sure to reply on time.
Upon acceptance, the school will notify you of the exact date and method of financial aid disbursement as well as any extra documentation needed, such as entrance counseling or promissory note signing.
Benefits of Federal Student Loans
The majority of students who must borrow money for their education first apply for federal student loans because they are the easiest to apply for and have several advantages.
Relatively Low Interest Rates
Furthermore, borrowing money for education is less expensive when you use federal student loans because they are low-interest loans with rates that are frequently lower than even the best private student loans.
Congress determines the annual interest rates for federal student loans, but once you obtain a loan, the rate does not fluctuate.
While variable interest rates offered by certain private student loan lenders may appear lower at first, your student loan interest rate will increase as interest rates rise.
Deferment and Forbearance Protections
Additionally, deferment and forbearance options for federal student loans are available to assist borrowers who are having financial difficulties or difficulty making their monthly loan payments.
Deferment refers to the procedure of postponing student loan payments for a predetermined amount of time, either due to a financial hardship or because you are enrolled in school at least half-time. Certain federal student loans may not charge interest while they are in deferment.
Forbearance refers to the act of temporarily deferring student loan payments solely because of financial difficulties. The majority of student loan borrowers who are in forbearance do accrue interest, which could be capitalized on the loan when the forbearance period expires.
A Variety of Repayment Options
Borrowers can choose from a variety of repayment plans other than the typical 10-year plan, in addition to the inherent benefits of federal student loans.
Income-driven repayment plans allow for reduced or no payments each month during periods of low income; graduated repayment plans begin at a lower level and gradually increase over time; and extended repayment plans allow for payments to be made for as long as
Following a predetermined number of monthly payments, some borrowers may also be eligible for student loan forgiveness.
Good Credit Not Require & Can Help You Build Credit
Last but not least, federal student loans are an excellent choice for people with poor credit since they don’t require a high credit score.
Furthermore, federal student loans could eventually aid in credit building. Federal student loan servicers report your payment history to the three major credit bureaus—Equifax, Experian, and TransUnion—every month, provided you make on-time payments in the minimum amount due.
By doing this, you build a solid reputation for responsible money management, which will help you in the future when applying for new credit.
Federal Student Loan Servicers
Despite providing funding for federal student loans, the Department of Education does not oversee the loans once they are disbursed or start to repay.
Rather, the government has chosen a number of private businesses to handle payment collection and offer you any assistance you may require along the way.
Keep in mind that you should be able to access your loan information in the National Student Loan Data System (NSLDS) regardless of who your servicer is.
The following is a list of federal student loan servicers along with contact details:
Nelnet is a federal student loan servicer in Lincoln, Nebraska. After acquiring Great Lakes Educational Loan Services, Inc. , in 2017, it’s the largest federal student loan servicer.
If your federal loans are serviced by Nelnet, you can find contact information on its website or call 1-888-486-4722. In recent years, the servicer has been under fire for the way it has managed payments and service requests from borrowers.
Consumer Financial Protection Bureau data indicates that Nelnet is among the top three federal student loan servicers in terms of borrower complaints (CFPB)
See our Nelnet Student Loan review for additional information about Nelnet.
Great Lakes Educational Loan Services, Inc.
Great Lakes Educational Loan Services, Inc. , is located in Madison, Wisconsin. Great Lakes is the servicer for borrowers; they can get in touch with them online or by calling 1-800-236-4300.
Although Great Lakes has received low ratings from borrowers on internet review sites, the CFPB has not recently published any negative information about the company or taken any enforcement action against it.
With its headquarters located in Wilkes-Barre, Pennsylvania, Navient is one of the major federal servicers for student loans.
Borrowers can get in touch with Navient through the company’s website or by calling 1-888-272-5543.
Similar to Nelnet, Navient is among the servicers that receives the most complaints from borrowers of federal student loans for improperly handling payments and service requests.
FedLoan Servicing, situated in Harrisburg, Pennsylvania, is a federal student loan servicer that goes by the name PHEAA.
The company can be contacted either online or by calling 1-800-699-2908. Like Nelnet and Navient, FedLoan Servicing is one of the top three servicers receiving the most complaints through the CFPB.
MOHELA is a federal student loan servicer located in Chesterfield, Missouri. Borrowers can connect with the company through its website or by calling 1-888-866-4352. There have been no significant complaints or lawsuits against MOHELA in recent years.
The main office of HESC EdFinancial, also known as EdFinancial Student Loans, is located in Knoxville, Tennessee. You can reach the company by phone at 1-800-337-6884 or online. As of May 2018, there were no notable grievances or legal actions filed against EdFinancial.
Another federal student loan servicing provider is CornerStone, which is situated in Salt Lake City, Utah. Borrowers can contact the servicer by phone at 1-800-663-1662 or online. As of May 2018, there have been no noteworthy complaints filed against CornerStone.
Granite State – GSM&R
Granite State, also known as GSM&R, is a federal student loan servicer operating in Concord, New Hampshire. Borrowers with Granite State as their servicer can contact the company by visiting its website or calling 1-888-556-0022. No major complaints or lawsuits have been filed recently against Granite State as of May 2018.
Another federal student loan servicer based in Oklahoma City is called OSLA Servicing. Borrowers can reach OSLA by phone at 1-405-556-9224 or through its website. As of May 2018, there was no significant issue or complaint against OSLA.
Federal Student Loan Alternatives
For the reasons mentioned above, borrowers frequently turn to the Department of Education’s student loans, but there are other options to take into account.
Getting a scholarship for your studies can have a significant impact on how much you have to borrow or pay out-of-pocket to graduate.
An award of financial assistance that is non-repayable is called a scholarship. It can be applied to other costs related to obtaining your degree, such as tuition and room and board.
Scholarships can be awarded for a variety of reasons, such as being a member of a specific organization or group, possessing particular qualities, or excelling in sports or other areas.
Another way to finance your college education with non-repayable funds is through grants.
Grants, in contrast to most scholarships (though not all of them), are frequently need-based, requiring applicants to demonstrate a need for the money. There are many different sources of grants and scholarships, such as local governments, businesses, and associations.
Funding from work-study programs is also available to some students. Students demonstrating a financial need at the undergraduate or graduate levels can work part-time under work-study programs.
These initiatives assist students in earning money toward their educational costs and frequently promote community service or employment closely associated with the student’s major.
Private student loans should be the next option for students when funding for federal student loans runs out. Private student loans, in contrast to federal student loans, are provided by private lenders; the maximum amounts, interest rates, and available repayment schedules differ between firms.
Because lenders typically require borrowers to have a good credit score and proof of income, or a cosigner with both, private student loans are more difficult to qualify for. Nonetheless, some student loans are accessible to people without a credit history or cosigner.
While private student loans may have lower interest rates than federal student loans, they may not always come with advantages like forgiveness, forbearance, or income-driven repayment plans.
To discover all the distinctions between federal and private student loans, view our comprehensive guide.
FAQ
Who is eligible for federal student loans?
Financial need is one of several criteria that determine eligibility for federal student aid, along with other factors like U S. citizenship or eligible noncitizenship, participation in a program that qualifies, making satisfactory progress toward a college degree, and more
Why am I not eligible for a federal student loan?
Regrettably, loan denials for prospective borrowers are frequent, and there are a variety of reasons why this might happen. You could be denied a loan due to a variety of factors, including incomplete application materials, past credit history, present credit score, and more.
Is it hard to get a federal student loan?
Especially for federal student loans, the qualification process for student loans is comparatively simple. However, even though they might be a simple way to pay for college, their ongoing expenses can end up being a big financial burden.
What disqualifies you from FAFSA?
For instance, you wouldn’t be qualified if your citizenship status changed as a result of your visa expiring or being revoked. Other grounds for being disqualified from financial aid include: Not making enough progress toward your degree or college failing to submit the FAFSA every year you are a student
Read More :
https://studentaid.gov/understand-aid/eligibility/requirements
https://studentaid.gov/understand-aid/types/loans