Federal Student Loans Guide
Federal student loans are loans funded by the federal government which are meant to help students finance their education.
Whether it be for tuition, books, food, room and board, or other costs, federal student loans are a lifesaver for many students around the country.
Additionally, federal student loans generally offer low interest rates, fees, and a lot of options for repayment. As a result, these loans are often preferable to private student loans for students looking for more flexibility.
Types of Federal Student Loans
There are four types of federal student loans available, all of which are part of the William D. Ford Federal Direct Loan Program, also known as Stafford loans.
These four types of federal student loans include:
1. Direct Subsidized Loans: Direct subsidized loans are intended for undergraduate students who demonstrate financial need. Interest on these loans doesn’t accrue while you’re still in school.
2. Direct Unsubsidized Loans: Undergraduate, graduate, and professional degree students can borrow unsubsidized loans each year to pay for school. Unlike subsidized loans, these loans do accrue interest while you are in school.
3. Direct PLUS Loans: These loans are designed for parents who are paying for their children’s undergraduate education, or for students enrolled in a graduate or professional degree program. These can be used to pay for your school’s total cost of attendance.
4. Direct Consolidation Loans: Lastly, direct consolidation loans are used to consolidate all of your federal debt into one loan with one monthly payment.
Together, these four federal loans are designed to provide funding to any college student in need of financial assistance at lower costs than private student loans.
Benefits of Federal Student Loans
Federal student loans are a great option for students in need of aid as they offer certain perks that make it easier to manage your student debt.
These benefits include:
● Deferment and Forbearance: Deferment and forbearance allow borrowers who experience financial hardship to pause their loan payments without penalty. This can be used to buy a little bit of time while you recover from your financial hardship.
● Variety of Repayment Plans: Federal student loans offer income-driven repayment plans to accommodate borrowers who can’t make the minimum monthly payments on their loans. These payment plans make it much easier for low-income individuals to manage their debt.
● Loan Forgiveness: Graduate students with federal student loan debt may have their debt forgiven if they work in public service, for a non-profit, are a teacher, or meet any other loan forgiveness qualifications.
Moreover, federal student loans typically offer low interest rates and fees, making them cost less than other student financing options.
How Much Do Federal Student Loans Cost?
The total cost of your loan is determined by four main factors: loan amount, interest rate, term, and fees.
The federal student loan interest rates and fees for the 2019/2020 school year are as follows:
|Fixed-Interest Rate||Loan Fee|
|Direct Subsidized Loan||4.53%||1.06%|
|Direct Unsubsidized Loan||Undergraduate: 4.53%, Graduate: 6.08%||1.06%|
|Direct PLUS Loan||7.08%||4.24%|
Direct subsidized loans are available in amounts up to $5,500 per year, while unsubsidized loans go up to $20,500 per year. Limits for Direct PLUS loans are dependent on your school’s certified total cost of attendance. Your loan term will depend on your repayment.
How to Apply for a Federal Student Loan
To get a student loan, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA).
Schools and states use this application to determine your eligibility for federal student loans and grants. You have to fill out this application every year to remain eligible for federal student aid.
It’s important to fill out this application as early as possible as there is a limited amount of funds for certain types of aid.
After filling out this application, you will receive an award letter that tells you what type of aid and how much money you are eligible to receive.
You can either accept all, some, or none of your award. You will typically be given a deadline by which you need to respond in order to receive your financial aid.
Once you accept your award, your school will give you information related to disbursement and let you know if you need to provide any additional information before receiving your federal student aid.
Monthly payments at 4.53% interest rate on a 10 year loan with a $22,000 balance, excluding origination fees of 4.25% for direct plus loans and 1.025% for direct loans