Paying for a college education requires careful planning. For the academic year 2018-2019, the National Center for Education Statistics states the average net price of attendance for first-time, full-time undergraduate students was $13,900 in four-year institutions. Students considering attending may wish to consider options to help them pay for their education. Financial aid may be available to those who qualify. The question is, how may federal student loans help you?
What Are Federal Student Loans for College?
Students applying for financial aid may qualify for an offer of loans as a component of their financial aid offer. A loan lets you borrow funds that you typically pay back later with interest. There are various locations to potentially secure a loan, including through the federal government. These are known as federal student loans.
The federal student loan program under the U.S. Department of Education is called the William D. Ford Federal Direct Loan Program, sometimes called the Direct Loan Program. Students who borrow through this program are borrowing from the U.S. Department of Education (that’s your lender).
This particular federal loan program provides access to four types of loans. It may be beneficial to take a look at each of the options available to determine which fits your specific needs.
Direct Subsidized Loans
Eligible students may be able to cover higher education costs at a four-year college or university, career school, trade program, technical school, or a community college using the funds from these loans, though restrictions apply. A direct subsidized loan is a type of student loans that is available to undergraduate students who have financial need. Some details related to it include:
- The school determines the amount a student may be able to borrow.
- The amount borrowed cannot exceed financial need.
- In this loan, the U.S. Department of Education pays the interest for students while they are in school at least half time, for the first six months after they leave school, and during a period of deferment.
Direct Unsubsidized Loans
This type of student loan is similar to that of a direct subsidized loan. It is available to both undergraduate and graduate students. A big difference is that unsubsidized loans do not have a financial need requirement, though other qualifications may apply. These loans have the following conditions:
- The school determines the amount the student may borrow based on attendance and other financial aid.
- The student pays the interest on their loan during all periods.
Direct PLUS Loans
Direct PLUS loans are available to parents and graduate or professional students who meet eligibility requirements to participate in the Direct Loan Program. It is sometimes called a parent PLUS loan when the loan is to the parent of the student rather than to the student themselves. Other times, it may be called a Grad PLUS loan when the borrower is a graduate student or a professional student. Some factors to keep in mind:
- A credit check may be conducted on the borrower. An adverse credit history may not always disqualify a person from a loan in some situations.
- Students may borrow the cost of attendance minus any other financial aid the student receives. This amount is set by the school.
Direct Consolidation Loans
A Direct consolidation loan is a bit different. It may allow eligible students to combine multiple student loans into one. In this type of student loan, this may provide students with several benefits, including a fixed interest rate based on the average interest rate of all of the loans being consolidated. Some things to know about these loans:
- There is no cost to the borrower to consolidate under these programs.
- It applies to students who have federal student loans and outstanding Perkins and FFEL loans.
- If students consolidate, they may have a single monthly payment to cover all the consolidated loans.
What Are the Benefits of Using Federal Loans Over Others?
Students may wish to consider several borrowing options to help them cover the cost of their education. For some students, federal student loans have a few potential benefits for students. Eligibility for the benefits of federal student loans may differ from one student to the next.
Interest Rates
Federal student loan interest rates are fixed rate loans. This may mean it is easier to know how much you need to pay throughout the course of the loan (as compared to adjustable rates). Additionally, it is not uncommon for these loans to have an interest rate that is lower than that of a private loan or a credit card. You can view current interest rates for Direct Loans at StudentAid.gov to compare them to other loan offers you have.
Also, for students with demonstrated need, the government may help to pay the interest on some of these loans while the student is in school.
Credit Checks
Many types of student loans do not require a student or other borrower to have a credit check. Students may not have to have a cosigner to secure these loans either. For students without a credit history, this may be helpful. (Keep in mind some do require a credit check.)
Flexible Repayment
Life may get in the way of repaying your debt later. With federal student loans, you may have some options for postponing or changing your repayment amount. Eligibility for this depends on many factors, but not all private loans allow for this.
Repayment
Another key benefit is that students typically do not have to begin repaying their federal student loans immediately. Many times, repayment begins after you leave school (whether you drop out or graduate) or when your enrollment falls below half-time.
Loan Forgiveness
Some individuals who work in specific fields may be able to request that some of their federal student loan debt be forgiven. While numerous conditions may apply, this may be beneficial to students who are working in critical careers, as defined by the agency.
How Much In Funds Do Federal Student Loans Offer?
Before beginning the application process, realize that there are typically limits on the amount a student may borrow. For undergraduate students, the amount available to borrow each year for either Direct Unsubsidized or Direct Subsidized loans often ranges from $5,500 to $12,500. This amount may change year to year. Various factors determine this, including dependency status and the year you are in school.
Graduate and professional students may be able to borrow as much as $20,500 each year through Direct Unsubsidized Loans if they meet eligibility requirements.
As you consider what your financial goals are to pay for your education, be sure to reach out to your college or university or other qualified educational establishment to learn more about applying for federal student loans.