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Federal Student Loans: Find The Best Option

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Dominique Broadway

Federal Student Loans

Getting through college today is as much about doing your homework and going to classes as it is about managing to pay for this education. The cost of a college diploma has increased dramatically over the past few decades, and while our salaries have also risen, the gap is still significant.

For many prospective students and their families, this means that going to a university will require a scholarship, grant, or a loan. While scholarships and grants are great ways to fund your studies, they’re also highly competitive and difficult to obtain. 

Loans, on the other hand, are easier to get but can be risky depending on how you get them. Private lenders are usually more than happy to help you, but their terms are often unfavorable and can be problematic down the line. 

For students in the US, however, the government offers a variety of federally-backed loans that can help you pay for school and give you more flexibility to repay them after you graduate. These loans usually don’t require a credit check or proof of income and tend to offer better interest rates and payment terms. 

These federal student aid programs cover the gamut from standard programs to specialized loans for different degrees, professions, and circumstances. Read more about federal loans for college and see if they are a good fit for your educational needs. 

Types of Federal Student Loans

Even though they are all backed by the US government, federal student loans are not all the same. There are several types of government school loans ranging from widely available programs to more career- or program-specific ones.

No matter which program you’re looking to apply to, you’ll have to complete a Free Application for Federal Student Aid (FAFSA), which includes grants, loans, and other forms of financial aid. 

All federal loans are made via the William D. Ford Federal Direct Loan Program, which is covered by the Department of Education and is available to any parents and students who qualify.

These are available both to pay for school and for federal student loan consolidation.

Here are the major loan types available: 

William D. Ford Federal Direct Loan Program (Stafford Loans) 

Stafford loans are the most common type of federal student aid available and come in several varieties. Depending on your level of education, the amount you want to borrow, and a few other factors, you may find that some plans give you better rates and terms than others.

If you’re looking for a direct student loan, you can apply for: 

Direct Subsidized Loans 

These loans are aimed at undergrad students with clear financial needs and are offered by most accredited educational institutions. The amount required per student is determined by the university, and the total loan cannot exceed each student’s financial need.

This is calculated based on tuition and associated living expenses. 

With subsidized loans, your interest is covered by the government while you’re enrolled (at least half-time), for six months after graduation (the grace period), and at any point, if you’re in deferment. This usually makes them the best alternative for loans. 

Direct Unsubsidized Loans

Unsubsidized loans are available to undergraduate students as well as graduate and professional students. Unlike subsidized loans, you don’t have to prove you have clear financial need, but the government will not pay any of the interest on your loans. Your available amount is based on your cost of attendance minus any aid you’ve previously received. It’s also restricted by federal student loan limits and determined by the school you’re planning to attend. 

>> read more about the differences between Direct subsidized and unsubsidized loans.

Direct PLUS Loans

PLUS loans are available to both parents of students (Parent PLUS) and graduate or professional students (Grad PLUS). In both cases, they’re meant to help cover the cost of education and offer some of the same federal protections other direct loans do.

Regardless, they are more akin to private loans than other federal student aid programs. 

PLUS loans require a credit check and have higher interest rates, as well as origination and processing fees. Interest payments are not subsidized, and in parents’ cases, there is no grace period for repayment.

They’re generally recommended when your children have taken out the maximum they can, or if for some reason they are unable to. 

Direct Consolidation Loans 

If you already have more than one federal loan and want to unify your payments at a single interest rate, you can apply for a direct consolidation loan. These are available to most borrowers with federal student loan debt and don’t require a credit check.

Even better, many are eligible for forgiveness and different repayment plans that make it easier to fully pay them. If you have Parent PLUS loans, you may not be able to consolidate them with your child’s loans. 

After explaining all of the direct loans check out the chart below that compares federal direct and private student loans.

Federal Direct Loan Vs Private Student Loans 

LoansBorrower SubsidizedRatesGood Credit
SubsidizedUndergraduateYesFixedNo
UnsubsidizedUndergraduate/GraduateNoFixedNo
Parent PLUSParents of Dependent Undergraduate StudentsNoFixedYes
Grand PLUSGraduate StudentsNoFixedYes
State LoanStudent and CosignerNoFixed or VariableYes
 
Private Student LoansStudent and CosignerNoFixed or VariableYes

Federal Perkins Loan Program

Before 2017, students and parents seeking federal loans could also apply for the Federal Perkins Loan Program.

The need-based program offered low-interest loans (at a fixed 5% for 10 years) to a variety of students and featured friendly conditions and flexibility.

They are also eligible for federal loan cancellation for those who work in public service occupations. 

Unfortunately, the program was not renewed by Congress in 2017 when it failed to pass, so there have not been any new applications since then. The last disbursements ended on June 30th, 2018, and the program is effectively dead.

Even so, if you still have Perkins Loans outstanding, you may be eligible for forgiveness and cancellation, or even a more favorable repayment term.

Federal Loan Interest Rates

One of the biggest draws of government student loans is that they offer better interest rates than many private lenders. Federal loan interest rates are set by congress yearly, and your rate won’t change once you’ve taken out a loan. Interest rates for direct subsidized and unsubsidized loans are the lowest.

Rates for the different types of Federal Loans: 2019-2020

Subsidized Interest RateUnsubsidized Interest Rate
Dependent Undergraduates4.53%4.53%
Independent Undergraduates4.53%4.53%
Graduates-6.08%
Parent PLUS-7.08%
Grad Plus-7.08%
Consolidation No pre-set rateNo pre-set rate

For 2019-2020, for example, the interest rate for undergraduate students is 4.53%, while the rate for graduate students is 6.08%, while PLUS loans start at 7.08%, and include origination fees.

Consolidation loans are the only type that doesn’t have a pre-set interest rate.

When you apply for a consolidation loan, your interest rate is calculated as the weighted average of the federal aid being consolidated rounded to the nearest eighth of a percentage. 

Benefits of Federal Loans

Federal student loans remain a popular option because they’re friendlier to borrowers than many private lenders.

We’ve already discussed the more favorable interest rates and stability they offer, but government loans include many protections that help borrowers if they are unable to repay their loans for any reason.

These range from repayment programs to completely canceling debt. It’s important to remember, though, that these programs sometimes have stringent qualification requirements. Here are some of the biggest benefits federal student loans offer: 

1- Income-Driven Repayment Plans 

If you’re paying too much in loan repayments relative to your annual income, you may qualify for an income-driven repayment plan. These programs cap the maximum amount you can repay per month at a fixed percentage of your income (ranging from 10% to 20%) and give you a longer repayment term to ease your financial burden. 

2- Deferment and Forbearance

Sometimes you may fall into some hardship or situation that precludes you from paying your loans. In these cases, federal loans many times offer deferment and forbearance protections. 

Deferment lets you delay your payments for a set period if you’re facing financial hardship or if you’re enrolled in school at least half-time, and you don’t accrue interest on some federal loans.

Forbearance lets you suspend payments temporarily but is reserved exclusively for when you’re facing financial hardships. Loans in forbearance usually still accrue interest, so it’s often good to avoid the process as much as possible. 

>> More info on which way to go: Deferment or Forbearance? 

3-Student Loan Forgiveness Programs

In some cases, you may have difficulty paying off the full sum of your outstanding debt or may simply qualify to have part of your loan erased. It’s important to remember that forgiveness isn’t always reserved for hardship, and you may qualify for a variety of reasons. 

Some programs reduce your loan balance as a reward for public service or working with underserved and needy populations. Others offer it as an incentive for long periods of responsible repayment. Overall, however, you can effectively avoid paying part of your loan if you qualify for the many time's stringent programs.

4-Student Loan Discharge Programs

As with forgiveness programs, there are a few alternatives that let you cancel the remainder of your loan with fewer restrictions on the amount, though they’re rarer. These programs involve unique scenarios, such as a permanent disability or death. 

If you are born with a disability or become disabled, you may qualify for a total and permanent disability discharge, which is granted if you can prove your injury.

If you pass away, your debt is usually discharged when valid documentation of your death is presented. You can also have your loan discharged if the school you attend closes before you complete your degree, though there are some limitations. 

Benefit Comparison Federal VS Private Student Loans 

FederalVSPrivate

Conclusion

A college education is a valuable endeavor and finding a way to pay for it should never be a burden. Federal student loans give you a friendlier and more secure way to borrow the funds you need for your education, and easier ways to pay it back.

Additionally, you can find programs that are more tailored to your desired career path, and which reward you for being responsible prompt with your payments. With fixed rates and the backing of the federal government, these student loans should always be at the top of your options list when you look for financial aid to pay for your university degree. 

Federal Student Loans FAQs 

How do I Log In? 

To log in to fill your FAFSA form and check on the status of your existing loans, you’ll first need to create an account. 

1. Visit Studentaid.Gov
2. Create your FSA (Federal Student Aid) ID by following the steps on the website
3. Answer the forms and provide the requested verification after you’ve completed them

>> More information on Studentaid.gov

How can I view my federal student loans? 

Once you’ve created your account, fill out a FAFSA form, and been approved for your loan, all your information will be available on StudentLoans.Gov. To see information about loan approvals, existing balances, and monthly repayments, you can check the website directly. 

How can I find my student loan account number? 

When you create an account on the StudentLoans.gov website, you’ll receive an identification number known as your FSA ID. In addition to your name, your FSA ID is the key piece of information that is included in your loan details. You can easily find this by logging in to your account. 

Can I be denied a federal loan? 

While they’re significantly more welcoming than private student loans, there are several reasons why you may be denied a federal student loan. These include: 

  • Having an existing default on a federal student loan
  • Not meeting the enrollment requirements (studying at least half-time) or not meet the satisfactory academic progress requirements
  • being an ineligible non-citizen
  • being convicted for a drug offense
  • being incarcerated

How much money can I borrow with a Federal Student Loan? 

Thanks to the variety of programs offered, students can borrow a significant amount of money based on their educational track. While subsidized and unsubsidized loans have a lifetime cap (subsidized loans, for instance, max out at $23,000) you can apply for a lifetime total of $57,500 if you’re an undergraduate student, or up to $138,500 if you’re a graduate student. 

How can I apply for a Federal Loan? 

to get started, you should first talk to your university’s office of student aid to determine how much you qualify for and if you need student loans. Then, simply visit StudentLoans.Gov to start filling out your FAFSA form and determine which loan is the best for you. 

When do I have to start repaying my student loans? 

One of the benefits of student loans is that you don’t have to start paying them immediately. Indeed, while many federal aid programs require that you at least pay the interest that accrues on your loan while in school, all of them include a grace period of at least six months after you’re no longer enrolled before you must start paying down your principal amount. 

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