Federal Student Loans
What are federal student loans?
Federal student loans are funded by the U.S. government and offer many benefits, such as low-interest rates, flexible repayment plans, deferment and forbearance options, and potential loan forgiveness programs. Federal student loans are available to U.S. citizens and eligible noncitizens who are enrolled at least half-time in an eligible degree or certificate program at an accredited school.
How to apply for federal student loans?
To apply for federal student loans, you need to fill out the Free Application for Federal Student Aid (FAFSA) online at FAFSA.ed.gov with your personal and financial information. You will need to create an FSA ID to log in and sign the FAFSA electronically. You will also need to provide your Social Security number, your tax returns and W-2s from the previous year, your bank statements and investment records, and your driver’s license or state ID number if you have one.
The FAFSA is available on October 1 each year and has a deadline of June 30 for the current academic year. For example, the FAFSA deadline for the 2021-2022 academic year is June 30, 2022. However, some states and schools may have earlier deadlines, so you should check with your school’s financial aid office or visit studentaid.gov for more information. You should complete the FAFSA as early as possible in the application cycle, preferably in October when it becomes available, to maximize your chances of getting the most aid possible.
What happens after you submit the FAFSA?
After you submit the FAFSA, you will receive a Student Aid Report (SAR) that summarizes the information you provided and shows your Expected Family Contribution (EFC), which is a measure of your financial need. Your EFC is calculated based on your income, assets, family size, and other factors. Your EFC is not the amount of money you have to pay for college, but rather the amount of money the government expects you and your family to contribute.
Your SAR will also indicate whether you are eligible for a Pell Grant, which is a type of federal grant that does not need to be repaid and is awarded based on financial need. The maximum Pell Grant amount for the 2021-2022 academic year is $6,495.
Your FAFSA information will be sent to the schools you listed on your application, and they will use it to determine your eligibility for federal student aid, as well as state and institutional aid. Each school will send you a financial aid offer or award letter that lists the types and amounts of aid you can receive from them. The financial aid offer may include federal student loans, such as:
- Direct Subsidized Loans, which are available to undergraduate students with financial need. The government pays the interest on these loans while you are in school, during the six-month grace period after you leave school, and during periods of deferment. The interest rate for Direct Subsidized Loans disbursed between July 1, 2021 and June 30, 2022 is 2.75%.
- Direct Unsubsidized Loans, which are available to undergraduate and graduate students regardless of financial need. You are responsible for paying the interest on these loans during all periods. The interest rate for Direct Unsubsidized Loans disbursed between July 1, 2021 and June 30, 2022 is 2.75% for undergraduate students and 4.3% for graduate students.
- Direct PLUS Loans, which are available to graduate or professional students and parents of dependent undergraduate students who have good credit history. These loans can cover the cost of attendance that is not met by other financial aid. The interest rate for Direct PLUS Loans disbursed between July 1, 2021 and June 30, 2022 is 6.28%.
How much can you borrow with federal student loans?
The amount of federal student loans you can borrow depends on your grade level, dependency status, and loan type. The following table shows the annual and aggregate loan limits for Direct Subsidized and Unsubsidized Loans:
| Grade Level | Dependent Students | Independent Students |
| First Year | $5,500 ($3,500 subsidized) | $9,500 ($3,500 subsidized) |
| Second Year | $6,500 ($4,500 subsidized) | $10,500 ($4,500 subsidized) |
| Third Year and Beyond | $7,500 ($5,500 subsidized) | $12,500 ($5,500 subsidized) |
| Graduate or Professional | N/A | $20,500 (unsubsidized only) |
| Loan Type | Aggregate Loan Limit |
| Direct Subsidized and Unsubsidized Loans (Undergraduate) | $31,000 ($23,000 subsidized) |
| Direct Subsidized and Unsubsidized Loans (graduate or professional) | $138,500 ($65,500 subsidized) |
| Direct PLUS Loans | Cost of attendance minus other aid |
How to accept and receive federal student loans?
To accept the federal student loans offered by your school, you need to follow the instructions on your financial aid offer or contact your school’s financial aid office. You may also need to complete entrance counseling and sign a Master Promissory Note (MPN) online at studentaid.gov. Entrance counseling is a mandatory session that explains your rights and responsibilities as a borrower and helps you understand how to manage your loans. The MPN is a legal document that binds you to repay your loans and any accrued interest and fees to the U.S. Department of Education.
Once you complete these steps, your school will certify your loan eligibility and request the funds from the U.S. Department of Education. The loan funds will be disbursed directly to your school, usually in two or more payments during the academic year. Your school will use the funds to pay for your tuition, fees, and other charges. If there is any remaining balance, your school will refund it to you or your parent (if you have a Direct PLUS Loan) by check or direct deposit. You can use the refund to pay for other education-related expenses, such as books, supplies, transportation, and housing.
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How to repay federal student loans?
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You will be responsible for repaying your federal student loans after you graduate, leave school, or drop below half-time enrollment. You will have a six-month grace period before you have to start making payments on your Direct Subsidized and Unsubsidized Loans. You will have a six-month post-enrollment deferment period before you have to start making payments on your Direct PLUS Loans. However, interest will accrue on your unsubsidized and PLUS loans during these periods.
You can choose from several repayment plans that vary in terms of monthly payment amount, repayment term, and interest cost. Some of the repayment plans are based on your income and family size and may offer potential loan forgiveness after 20 or 25 years of qualifying payments. You can change your repayment plan at any time by contacting your loan servicer. Your loan servicer is the company that handles the billing and other services for your federal student loans. You can find out who your loan servicer is by logging in to studentaid.gov.
If you have trouble making your loan payments, you may be eligible for deferment or forbearance, which are temporary pauses in your payments. Deferment and forbearance can help you avoid defaulting on your loans, which can have serious consequences for your credit score and future borrowing ability. However, interest will continue to accrue on your unsubsidized and PLUS loans during deferment and forbearance periods, increasing the total amount you owe.
You may also qualify for loan forgiveness, cancellation, or discharge under certain circumstances, such as working in public service, teaching in a low-income school, becoming permanently disabled, or having your school close while you are enrolled. You can find out more about these options by visiting studentaid.gov.
Private Student Loans
What are private student loans?
Private student loans are funded by banks, credit unions, state agencies, or other lenders that are not affiliated with the federal government. Private student loans may be an option for students who need additional funding after exhausting their federal student aid eligibility or who are not eligible for federal student aid.
However, private student loans typically have variable or fixed interest rates that can be lower or higher than federal student loans depending on the borrower’s credit history, cosigner’s credit history, loan term, and market conditions. Private student loans also have fewer repayment options and less flexible terms than federal student loans. Private student loans do not offer the same benefits as federal student loans, such as deferment and forbearance options, potential loan forgiveness programs, and income-driven repayment plans.
How to apply for private student loans?
To apply for private student loans, you need to create an account with the lender you choose and submit an application online with your personal, school, and financial information. You will also need to provide information about a cosigner, who is someone who agrees to repay the loan if you fail to do so. A cosigner is usually required for private student loans because most students do not have enough credit history or income to qualify on their own. Having a cosigner can also help you get a lower interest rate and better terms for your loan. A cosigner can be a parent, relative, friend, or anyone who meets the lender’s criteria.
Each lender has its own eligibility requirements, interest rates, fees, and repayment terms for private student loans. You should compare different lenders and their offers before applying for a private student loan. You can use online tools and calculators to estimate your monthly payments and total cost of borrowing. You should also read the fine print and understand the terms and conditions of your loan agreement before signing it.
How to get approved and receive private student loans?
The lender will check your credit history and score, as well as your cosigner’s, to determine your loan approval and interest rate. The lender may also require you to submit proof of income, enrollment, and academic progress. The lender will send the loan to your school to certify and approve it. The loan funds will be disbursed directly to your school, usually in one or two payments during the academic year. Your school will use the funds to pay for your tuition, fees, and other charges. If there is any remaining balance, your school will refund it to you by check or direct deposit.
How to repay private student loans?
You will be responsible for repaying your private student loan according to the terms and conditions of your loan agreement. You may have a grace period or an in-school deferment period before you have to start making payments on your loan. However, interest will accrue on your loan during these periods, increasing the total amount you owe.
You may have a choice of repayment plans that vary in terms of monthly payment amount, repayment term, and interest cost. Some lenders may offer interest-only payments or partial payments while you are in school or during the grace period. Some lenders may also offer hardship options, such as forbearance or rate reduction if you have difficulty making your loan payments. However, these options are not guaranteed and may have fees or limitations.
You may not qualify for loan forgiveness, cancellation, or discharge under any circumstances unless the lender offers such programs or you file for bankruptcy (which is very rare and difficult). You may also not be able to consolidate your private student loans with your federal student loans or refinance them with another lender.
Conclusion
Student loans are a type of financial aid that can help you pay for your education expenses. There are two main types of student loans: federal and private. Federal student loans are funded by the U.S. government and offer many benefits, such as low-interest rates, flexible repayment plans, deferment and forbearance options, and potential loan forgiveness programs. To apply for federal student loans, you need to fill out the FAFSA online at FAFSA.ed.gov with your personal and financial information as early as possible in the application cycle. Private student loans are funded by banks, credit unions, state agencies, or other lenders that are not affiliated with the federal government.
Private student loans typically have variable or fixed interest rates that can be lower or higher than federal student loans depending on the borrower’s credit history, cosigner’s credit history, loan term, and market conditions. Private student loans also have fewer repayment options and less flexible terms than federal student loans. Private student loans do not offer the same benefits as federal student loans, such as deferment and forbearance options, potential loan forgiveness programs, and income-driven repayment plans.
To apply for private student loans, you need to create an account with the lender you choose and submit an application online with your personal, school, and financial information. You should compare different lenders and their offers before applying for a private student loan. You should also read the fine print and understand the terms and conditions of your loan agreement before signing it.
You will be responsible for repaying your student loans after you graduate, leave school, or drop below half-time enrollment. You should choose a repayment plan that suits your budget and goals. You should also contact your loan servicer or lender if you have any questions or concerns about your loan payments.
Student loans can be a valuable investment in your future, but they also come with responsibilities and obligations. You should borrow only what you need and what you can afford to repay. You should also keep track of your loans and make timely payments to avoid defaulting on them. By managing your student loans wisely, you can achieve your educational dreams without compromising your financial future.