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Learn about the terms and advantages of federal student loans before taking out any.
The bulk of student loans in the US are federal. Their perks and conditions are usually greater than private student loans since the federal government makes them. Before you sign on the dotted line, it’s crucial to familiarize yourself with the loan types you may be qualified for.
Remember that all student loans, including federal loans, are borrowed funds that must be repaid-with interest. Consider your choices carefully before taking out student loans to pay for college or further education. Always look into scholarships, grants, and work-study possibilities before considering loans.
Fill out the Free Application for Federal Student Help (FAFSA) every year to apply for federal student loans and other aid. FAFSA.com or the myStudentAid mobile app or visit citrusnorth.
Direct Subsidized Loans
Direct subsidized loans are provided to deserving undergraduate students. The FAFSA calculates your financial need using a formula.
This loan offers better terms than other federal loans if you qualify since the government pays the interest during specified periods, like full-time enrollment, the six-month grace period after graduation, and deferral.
The current fixed rate for direct subsidized loans is 2.75 percent. Origination fee: 1.057 percent for loans taken after October 1, 2020, but before October 1, 2021.
No credit check is necessary, but there are annual and lifetime restrictions on the number of unsubsidized loans you may borrow. As reported on your FAFSA, the limits vary depending on your school year and whether you are a dependent or independent student.
These loans are protected under the federal lending program’s core borrower protections. You don’t have to pay them back while in school and for six months after you graduate. Direct subsidized loans are eligible for many repayment options meant to assist you through tough financial times and loan forgiveness programs like PSLF.
Direct Unsubsidized Loans
In some ways, unsubsidized direct loans are like subsidized loans. Most importantly, even when the loan is not in active repayment, the unsubsidized loan borrower remains accountable for all accrued interest. Unsubsidized loans are also accessible to undergraduate and graduate students, regardless of financial need.
Graduate and professional students are charged a higher interest rate of 4.3 percent on unsubsidized loans, the same as for subsidized loans for undergraduates.
Unlike subsidized loans, direct unsubsidized loans have a six-month grace period after graduation, but interest accrues continuously and must be paid when loans are repaid.
No credit check is necessary. However, there are borrowing restrictions. The loan restrictions vary depending on whether you’re a dependent or independent student.
Undergraduate students may borrow up to $31,000 for dependent students and $57,500 for independent students in direct subsidized and unsubsidized loans. The amount you are eligible for may be less than the yearly loan limitations depending on your cost of attendance and any financial assistance you receive.
Direct PLUS Loans
Direct PLUS loans are granted to graduate or professional students or parents of dependent undergraduate students. If you still need money after taking out all of your unsubsidized and subsidized loans, these loans are aimed to help you bridge the gap.
A credit check is necessary, but borrowers with bad credit may still qualify for a PLUS loan with a co-signer or satisfy other conditions.
These loans have less advantageous conditions. Therefore you should start with direct unsubsidized and subsidized loans. PLUS loans have a set 5.3 percent interest rate. 4.228 percent for loans taken after October 1, 2020, but before October 1, 2021.
A PLUS loan may only be used to cover the cost of attendance, less any other financial help obtained.
The Grad PLUS and Parent PLUS loans have several notable distinctions. Grad PLUS students do not have to pay back their loans while enrolled at least half-time in school and six months after graduation, although interest does accumulate. Parent PLUS borrowers may request a deferral during certain times but must start paying when the loan is released.
Grad PLUS borrowers are eligible for income-driven repayment plans and debt forgiveness programs like PSLF. They may qualify for an extended repayment plan that permits reduced payments over a longer period or an income-contingent repayment plan if they consolidate their Parent PLUS loans into one federal direct consolidation loan.
Direct Consolidation Loans
Consolidation loans are distinct from other government loans. They enable borrowers to consolidate all qualifying federal student loans into one without paying an application fee.
The new consolidation loan’s interest rate would be a weighted average of the present student loan interest rates, rounded to the closest eighth of 1 percent. There are income-driven repayment plans available for consolidation loans.
While debt consolidation has certain advantages, you should carefully consider if it is best for you. Consolidating student loans simplifies payments by providing a single monthly payment and one student loan servicer. You may also be eligible for extra debt repayment and forgiveness options.
Forgiveness for qualified PSLF payments or income-driven repayment plan installments may be lost if you consolidate your loans.
If you combine them, you may also lose certain advantages from earlier Federal Family Education Loans (FFEL) and Perkins loans.