Federal student loans - what does it mean for you? ✅

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Student loan debt is higher than ever before! In the last decade alone, student loan debt has risen over $1 trillion dollars. And while paying back your loans may seem impossible, a simple change in how you borrow can make a big difference.

With Federal Student Loans, you’re not only responsible for repaying your loan, but you’re also locked into making monthly payments for 10 years (unless you refinance) and you have no choice about where you go to school. That’s why we created our program called Pay As You Earn. This plan gives you flexibility while still helping you repay your student loan faster, and it may just help you save money in the long run.

You’ll pay nothing if interest rates rise and you stay enrolled at least half time. If interest rates fall, you could get a refund or even owe less than you borrowed. There’s simply no risk. And don’t stop learning once you graduate – earn college credit while you study, then transfer those credits to a university near you.

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Federal student loans – what does it mean for you?

Student Loans

A federal loan is any type of loan that is backed by the United States government. If you receive a Federal Direct Loan, you have several options about where to use your money once you graduate. You may choose between two different types of plans: repayment and consolidation. Repayment means paying back the loan over time with interest. Consolidation means taking out just one loan with a lower monthly payment. Both types of plans require that you keep making payments until the loan is paid off.

Paying for College

You should always aim to pay for college before borrowing money. This way, if things go wrong, or you need to leave school early, you won’t lose too much money. Also, if you’re going to borrow money, make sure you plan ahead and save enough money to cover all the costs of your education. If you don’t have enough money saved up, then you can try to get scholarships, work study programs, and apply for grants while still attending school.

Your Options

After graduating from college, you’ll probably want to start saving for retirement, buying a house, or starting your own business. In order to do this, you’ll likely take out a private loan instead of using the federal loan system. Private loans are not backed by the U.S. government and therefore, they carry their own set of risks. But since you’re paying back these loans yourself, you’ll know exactly how much you owe at any given time.

Your FICO Score

Your credit score affects whether you qualify for a loan and at what rate. Most lenders look at your credit history — your credit card balances and past transactions — to determine your score. So, even though you might qualify for a low-interest loan, your lender could reject your application because of something in your credit report.

Closing Costs

Closing costs refer to fees charged by lenders when you close a deal on a home loan. These range anywhere from 1% to 5% of the total amount borrowed. When you compare rates and terms side by side, you’ll notice that some terms cost more upfront than others.

How long you have to pay

The length of time it takes you to repay your loan also varies. A fixed-rate loan requires you to make payments throughout the term of the loan. On the other hand, a variable-rate loan lets you decide how long you want to pay. If the interest rate goes down, you can lower your monthly payment. However, if the rate increases, you’ll face higher payments.

Default Risk

Default risk occurs when borrowers fall behind on their payments and cannot afford to continue without assistance. Lenders often charge extra fees and penalties to individuals who default. And if you stop making payments altogether, you’ll end up losing everything including your home.

Federal student loans – what does it mean for you?

The U.S. Department of Education’s Federal Family Loan (FFL) Program offers financial assistance to eligible students who attend schools participating in the program. Eligible borrowers may borrow up to $31,250 per academic year, without paying interest while they are enrolled in school and the first six months after graduation. After completing repayment, any remaining balance will be forgiven.

Eligibility Requirements

Borrowers must meet certain eligibility requirements to qualify for FFL. Students have to complete their high school diploma or GED prior to enrolling in college. If a borrower has not earned a high school diploma, he/she has to apply to the loan servicer as soon as possible once his/her educational expenses begin. Borrowers must demonstrate financial need and show proof of enrollment at a qualifying postsecondary institution. Loans cannot be taken out until the borrower officially begins attending classes full-time. Students must maintain satisfactory academic progress toward completion of degree programs to remain eligible for FFL.

How Does FFL Work?

Once a borrower meets the eligibility requirements, he/she applies for and receives approval from the lender. A monthly payment plan is set up based upon information provided to the lender. Payment plans can vary according to the type of loan chosen and the income of the borrower. Payments are calculated based on principal, interest, taxes and insurance (PITI). Repayments are made over 10 years. Any remaining debt remains forgiven after the borrower completes school and graduates.

How Do I Apply for FFL?

To access FFL, visit www.federalfinancing.ed.gov. There you’ll find step-by-step instructions on how to apply online. You’ll also need to submit documentation proving that you meet the criteria listed above. You’ll receive notice of whether your application was approved within two weeks if you provide correct information. If you don’t follow the rules, or fail to supply requested documents, the loan won’t go through.

What Are My Options?

There are three types of loans offered under the FFL program: Subsidized Stafford Loans, Unsubsidized Stafford Loans and PLUS Loans. Different amounts are available depending on the type of loan selected.

Subsidized Loans

If you choose subsidized Stafford Loans, you’ll pay no interest while you’re still enrolled in school and the six month grace period following graduation. Interest rates start accruing after six months. Repaying loans starts with the first full payment after graduation. On average, borrowers will repay about 14 percent of the loan amount each month.

Unsubsidized Loans

With unsubsidized Stafford Loans, borrowers will pay interest throughout the entire repayment term. However, payments are lower than those for subsidized loans. Student’s total cost of borrowing is higher with unsubsidized loans. In addition, interest rates on unsubsidized loans are variable, meaning that rates increase as time goes on. Repaying loans is done in 10 equal installments over a five year period.

PLUS Loans

Federal student loans – what does it mean for you?

What do I need to know about federal student loan options?

You may have heard the term “student loan” thrown around casually, but if you want to understand how student loans work – and what they really mean for you – you’ll want to learn more about them. Here’s what you should know.

What exactly are student loans?

A student loan is basically money borrowed from someone else that you’ll pay back over time. Student loans are created to help people afford higher education, and they provide funds for school costs, books, and tuition. There are four types of federal student loans:

Direct Subsidized Loans (Subsidized): Your lender pays the interest while you’re enrolled in school. You may borrow up to the full cost of attendance minus any money you’ve previously borrowed for college. Subsidized loans generally start at $0 per credit hour. After you graduate, you repay your subsidized loan either directly from your earnings once you get a job or through income-driven repayment plans.

Federal Parent Loan Forgiveness Program (PLFP): If your parents qualify, you may be able to have some or all of their federal student loans forgiven after 10 years of payments. You won’t have to begin repaying your parent’s loans until after you’ve paid off your own debt. And remember, if you don’t make loan payments for five years, you lose the opportunity permanently. But you still must earn income while enrolled in school to qualify.

Federal Unsubsidized Loans (Unsubsidized): These loans offer no government assistance, but you can use them for any purpose regardless of income level. So, you could take out an unsubsidized private loan to finance your education. Most lenders require a good credit score and financial history before approving these loans. In addition, you’ll likely be charged interest based on your creditworthiness. You’ll also pay down the principal after graduation, but not always right away. While you might be able to borrow up to the full amount of tuition without paying anything toward the principle (for example, if you were accepted into a highly competitive university), the lower your GPA, the less you’ll pay down each month.

Federal PLUS Loans: PLUS loans let students who meet certain criteria borrow additional money beyond the cost of their undergraduate education. To qualify, you must attend school with at least half-time enrollment, have received an FAFSA waiver, and have a parent who makes less than $80k/year ($160k/year joint). You can also apply for PLUS if you already owe money on a previous loan. A PLUS loan isn’t considered taxable income, but you’ll eventually have to pay taxes on it just like any other type of loan.

How much can I borrow?

Most public colleges and universities charge in-state residents fees ranging from $50-$1,000. Out-of-state residents can expect to pay between $200-$10,000. Private schools tend to have even steeper rates. However, you can potentially borrow more money than you think. The maximum amount of total federal student aid varies depending on whether you go to a public school or a private institution, and the type of loan you choose. Public school limits range from $27,000-$55,500, while private school caps vary from $40,850-$65,400. Plus, PLUS loans allow borrowers to borrow unlimited amounts.

Can I get student loan deferment?

Yes! In fact, many people use student loan deferments to cover all their loans. Deferments are offered in two ways:

Income-based: You may be eligible to postpone making monthly payments for up to six months if you can prove to your lender that unemployment, illness, or underemployment have prevented you from working. Or, you may be eligible to pause your repayments for 12 months if you’re going through a divorce, are caring for ill family members, or are raising children.

Interest-rate reduction: Borrowers may also qualify for an interest rate discount. When you sign up for a federal loan, the current interest rate applies to whatever portion of your balance remains unpaid. But if you’re willing to put the same amount towards your loans each month as the interest would add to your debt annually, then the Bureau of Prisons may reduce the rate on any remaining balances.

Federal student loans – what does it mean for you?

The Feds Student Loan program was created back in 1965. However, it wasn’t until the year 2010 that they actually started handing out student loan funds. There have been some changes over the years, but currently, anyone who is enrolled at least half-time can apply for federal student loans. Federal student loan rates vary depending on many factors including the type of school attended, how long you plan on attending, the amount borrowed, and where you live. A higher rate generally means a lower monthly payment. Here’s a quick breakdown of the different types of federal student loans available today.

10a. Direct Subsidized Loans: These are the most commonly awarded loans. You’ll pay interest while you’re in school, but upon graduating, you’ll repay only the difference between the interest paid and the original loan amount. If the balance is greater than $0, you’ll make payments directly to the government, but if the balance is less than $0, then you’ll repay your lender. After 10 years, these loans become fully forgiven.

10b. Direct Unsubsidized Loans (no income restriction): These loans require no repayment until after graduation or after 120 days of enrollment, whichever comes first. Once you graduate, however, you’ll still need to start repaying interest immediately. Your maximum loan limit applies to both subsidized and unsubsidized loans.

11a. Perkins Loans: As their name suggests, these are offered to students enrolled in specific programs, such as nursing, agriculture, public service, etc. Repayment begins immediately upon graduation, although you may delay repayment based on financial hardship. You won’t receive any grants or work-study positions to help cover your loans. You’ll be expected to find a job once you get out of school.

11b. PLUS Loans (for parents/dependents) : PLUS loans are designed specifically for parents of dependent children. While you do not qualify for a regular federal student loan, you may qualify for a PLUS loan. To qualify, you must either be a parent or dependents of a parent who receives a federal Pell Grant. Parent PLUS loans are available to those whose annual household income is below $80,000 per annum. You don’t need to attend college right away; instead, you can begin taking out smaller amounts of money each semester. Upon graduating, you’ll have an additional three years to pay off your PLUS before you’re eligible to discharge them.

12. Stafford Loans: Available to undergraduates, postgraduates, and recent graduates, Stafford loans are federally guaranteed. Unlike private lenders, the federal government promises to pay off your loans whether you default or not. You will be charged interest while you’re in college and throughout your repayment period. If you decide to defer your payments, you won’t accrue interest, but you might face penalties and fees. The maximum allowable loan amount is $23,500 for undergraduate borrowers.

13. Grad PLUS Loans: Like PLUS loans, grad PLUS loans are designed for parents of dependent children, regardless of their financial situation. Parents can borrow up to $31,000 annually for undergraduate and graduate students. In addition, grad PLUS loans don’t count towards financial aid caps.

14. VRAP Loans: Created in 2008, virtual reality advance planning loans are aimed at helping people who are enrolled in certain vocational training courses. Basically, these loans allow you to take out larger sums of money than standard federal loans. If you complete your coursework successfully, you may be able to apply for forgiveness options. However, you won’t be able to access any of your funds until after you’ve completed your education or training.

15. Income Based Loans: Also known as consolidation loans, income based loans are aimed at people who already have student debt. Instead of paying off your other loans, you’ll consolidate your federal student loans under one account. Consolidation loans offer flexible repayment plans and low interest rates. An example of an income based loan is the Pay As You Earn program.

16. Other Options: There are a few other forms of federal student loans, including direct loans, private loans, alternative loans, and military educational assistance. Each one has its own unique features, so check out www.studentaid.ed.gov to learn more.