Federal Student Loans: What They Are, What Benefits There May Be

What Is a Federal Student Loan?

A federal student loan (also known as an FSL) is a type of educational loan provided by the United States government. The loans are issued directly by the U.S. Department of Education’s Direct Loan Program after being guaranteed by the U.S. Department of Health and Human Services’ (HHS) IV-E program. You may have heard these loans referred to as “student financial aid”.

How Do I Qualify For A Student Loan?

If you are eligible to receive certain types of financial aid, you may need to apply and qualify for a student loan. In some cases, students who do not meet the criteria for any scholarships or grants may still qualify for student loans. However, if you have enough academic merit to receive a grant, then you might not qualify for a loan.

Who Pays My Student Loan?

You pay back the amount you borrowed plus interest over time. Your monthly payment includes principal and interest. If you borrow $0, your monthly payments do not go toward paying down the principal. Instead, they go toward interest. As long as you continue to make payments according to your repayment plan, you will eventually repay the entire amount of your loan.

How Long Will I Pay Off My Student Loan?

The length of your repayment period varies depending on how much money you borrow, what kind of loan you get, and whether or not your school charges interest on your loan. Most people will pay off their loans in 10 to 30 years.

What Kind Of Interest Rate Am I Owed On My Loan?

Student loans can carry different rates of interest, ranging from 1%-6%. Depending on the creditworthiness of the borrower, the actual rate charged may vary.

Can I refinance my federal student loan?

Yes, you can refinance your student loan. While refinancing your student loan is a good option, you should understand what you are getting yourself into before doing so. It is always best to research potential lenders and compare rates first.

Where Should I Apply to Refinance My Loan?

Some borrowers prefer to work with private student loan companies rather than federally-issued student loans. Private student loan companies often offer lower rates on student loan refinancing. Another benefit of using a private lender is that you can shop around for the lowest rate offered.

Federal Student Loans: What They Are, What Benefits There May Be

What is FSL?

The Federal Family Education Loan (FFL) Program is a federal program administered by the U.S. Department of Education’s (ED). It was established under Section IV-B of the Higher Education Act of 1965. Most students have at least one FFELP loan outstanding during their time in higher education.

Who Can Apply for FSL?

Students who meet certain eligibility requirements may apply for student loans. To qualify for a FEDLAP loan, you must:

Enroll between 1/1/16 and 9/30/17, OR

have been accepted or enrolled full-time in an eligible institution between 9/01/15 and 8/31/16, OR;

Be a degree-seeking undergraduate student if you are pursuing a bachelor’s degree (or equivalent), a graduate or professional degree, non-degree certificate, or vocational training coursework, OR;

be enrolled in a school subject to the following restrictions:

If you are pursuing a 2-year associate degree, you must be enrolled in a school subject only to Associate Degree programs.

If you are pursuing an associate’s degree, you must be enrolled full-time.

If you are seeking certification or diploma training, you must be enrolled half-time (i.e., 12 hours per week minimum).

You may not receive a FEDLAP PLUS Loan if you meet any of the following criteria:

OR;

OR;

Federal Student Loans: What They Are, What Benefits There May Be

Student aid may be granted directly to students or to their parents or guardians as a benefit under any of several federal financial assistance programs. Students who qualify for these types of financial aid may have access to funds as soon as they enroll in school, depending on the program.

Subsidized student loans are available through the U.S. Department of Education’s Direct Loan Program. These loans generally do not accrue interest while the borrower is enrolled; deferment options exist if borrowers encounter hardship; repayment begins after graduation; and subsidized loans must be repaid until the borrower reaches a specified age.

Unsubsidized federally guaranteed student loans, also known as direct PLUS loans, are available to both undergraduate and graduate students. A parent or guardian must co-sign a PLUS loan. However, when the borrower makes satisfactory academic progress, the parent or guardian becomes eligible for a share of the loan proceeds.

Private lenders offer many different types of student loan products. Borrowers seeking federal student aid should check out the Direct Loan Program offered by the U.S. Department of Education. Before applying for student loans, find out what type of terms work best for you. Compare interest rates, monthly payments, duration, grace period, payback requirements, and other factors. You might want to consider refinancing your current debt into a lower-rate loan.

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Federal Student Loans: What They Are, What Benefits There May Be

Students who qualify for federal loans may find themselves paying less than they would have if they had chosen private student loans. Federal loans offer borrowers certain advantages over private lenders.

Lower loan rates (both fixed-rate and variable)

No origination fees.

No prepayment penalties.

No application or credit score requirements.

government insurance for default.

Higher income limits (currently $57,500 per year for direct subsidized loans and $80,100 for direct unsubsidized loans)

They typically have lower interest rates than private lenders.

lower monthly payments than private loans.

In addition, federal loans are not considered taxable income to the borrower. Private loans generally are taxable to the borrower in both the federal and state tax systems.

Qualifying criteria for federal student loans are straightforward and fairly simple to meet. To qualify, students need to meet two criteria:

have financial assets below the current maximum eligibility limit, currently set at $23,000 for Direct Subsidized Loans and $43,650 for Direct Unsubsidized Loans.

and maintain a minimum cumulative GPA of 2.0 on their college transcripts.

The amount of money borrowed by a student is determined by several factors, including:

Federal Student Loans: What They Are, What Benefits There May Be

The U.S. Department of Education offers a variety of student loan programs for students pursuing higher education at both public and private institutions. These loans have been around for decades and are relatively simple to obtain.

Learn about these types of federal student loans and what they may mean for your future.

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