Federal Undergraduate Student Loans

Federal student loans have been around since the early 1980’s, but they were not federally guaranteed until after 2007. Before then, private lenders had the authority to issue federal loans and could set their own terms, making them difficult to compare. In 2004, Congress passed legislation requiring all loan companies to begin offering comparable rates and terms to students.

Since the inception of federal student loans, the average interest rate has dropped steadily until 2017 when it was at 4.63 percent. However, borrowers who took out loans prior to July 1, 2012 will pay higher rates than those who did so after July 1, 2012.

If you take out a student loan before July 1, 2012, the interest rate will be adjusted annually based on the U.S. Treasury’s target rate for 10-year Treasury bonds plus an additional 2 percentage points. Beginning July 1, 2016, if the yield on the 10-year bond falls below the amount added to the federal interest rate (which is currently set at 0.85 percent), the government pays the difference. From July 1, 2018, the federal interest rate will adjust each year to match the current rate on 10-year Treasuries.

A financial aide professional can help you complete the FAFSA and decide what loans are best for you.

If you do not qualify to borrow directly under the Federal Family Education Loan Program (FFELP) and want to pursue a private alternative school lender, consider using the National Association of Private Student Loan Managers (NAPSLM). NAPSLM is an accrediting body that evaluates the various lenders operating in the market. You can search for accredited lenders that offer private student loans on the NAPSLM website.

If you need to make payments while enrolled in college, the grace period for paying back federal student loans ends six months after you leave school. After that point, you may not be able to defer the payment any longer.

Your first student loan payment will be due 30 days after the end of the term for which you borrowed money. Payments should always be made on time, as late fees, default penalties, and collection actions can add up quickly. You may also contact the Department of Education’s toll-free phone line at 888-687-3276 to request a repayment plan.

The maximum allowable loan amounts vary depending on your major and field of study. For example, medical students can take out $57,500 in total federal loans, whereas law students can access $65,500.

Interest begins to accrue on federal student loans once they are issued.

Repaying student loans can be done in two ways: interest only or principal and interest. When you choose interest only repayment, you pay off the principle balance of your loan at the beginning of the term and then just start paying interest; the principal remains unchanged throughout the term. On the contrary, if you choose principal and interest repayment, you pay down both the principle and the interest balances at the same time. Each option carries its own pros and cons: interest only is generally cheaper, but if you don’t pay enough, you risk having the whole balance become delinquent; principal and interest repayment means you are committed to paying down the full principal balance at the end of the term.

While applying for federal student loans, be sure to keep track of all deadlines and follow the requirements carefully. Missing even one deadline can lead to delays in receiving aid, which might cause you to miss out on opportunities outside of school.

Federal Undergraduate Student Loans

What is federal student loans?

Federal Student Loan (FSL) programs help students pay for college costs. There are two types of Federal Student Loans: subsidized and unsubsidized.

Subsidized Federal Student Loans are interest-free if certain conditions are met. Subsidized loans are offered to eligible undergraduate students only. Generally, these loans require that borrowers have a high school diploma or GED. If you’re going to college full time, you may qualify for a loan up to the cost of attendance at your school. You’ll need to fill out FAFSA(Free Application for Federal Student Aid), the Free Application for Financial Assistance, and sign Official School Transcripts to apply. Your school may also require additional documentation.

Unsubsidized Federal Student Loans do not offer any financial assistance. These loans are generally intended for graduate studies, professional schools, or vocational training. Unsubsidized loans may be available to you if you meet income restrictions based upon your family’s adjusted gross income.

You may borrow money for qualified education expenses. However, you’re responsible for paying back all of the money borrowed — including interest. You’ll start repaying your loan after graduation or withdraw from school without completing your program. Repayment starts six months after you stop attending school, unless you obtain a deferment while enrolled. After you complete payments, you’ll continue making monthly payments until 20 years have passed since you began repayment, unless you go to deferments or forbearances.

What about private student loans? Private student loans are loans where the lender makes money off of your loan payments. These loans often carry higher interest rates than federally guaranteed loans. In addition, they may not allow you to receive federal aid or grants unless your university participates.

Private lenders use credit scores to determine whether to lend you money. If your score isn’t good enough, you may not qualify for a loan. Private lenders also charge higher interest rates than government-backed lending institutions.

How does the FAFSA work?

The Free Application for Federal Student Aid (FAFSA) is the application to get funding for your student loans. The FAFSA asks where you plan to attend college and what you want to study. There are two ways to file the FAFSA: online and paper. Both methods ask similar questions, but the format differs slightly. You can file as early as January 1st each year.

Your FAFSA will show you if you qualify for financial aid. You’ll know how much your financial aid package includes before you decide where to enroll. Your school may charge you for filing the FAFSA. Check with your school to make sure you understand their policy on fees.

Where should I look for information about my options for student loans?

There are many websites that provide information about student loans. Here are some of the best ones:

Also check here for scholarships and grants.

Federal Undergraduate Student Loans

Federal undergraduate student loans allow you to borrow money at low interest rates while being able to defer payment until after graduation. Interest begins accruing while you’re still enrolled in school and doesn’t begin to build up until after you graduate. There’s no need to worry about loan forgiveness when you go back to work; federal student loans don’t require repayment once you start earning a paycheck. However, if you find yourself having difficulty paying your student loans off, the U.S. Department of Education offers income-based repayment plans to assist borrowers with their payments.

Federal Undergraduate Student Loans

Public Service Loan Forgiveness (PSLF)

If you have worked over 10 years full time jobs while going to school, then you may qualify for Federal student loan forgiveness under the Public Service Loan Forgives Act. You will need to be working at least 100 hours per quarter in a public service job. Any work that receives funding through the government qualifies. You do not have to pay back any loans if you meet certain requirements, including making 120 payments on your student loans. Your income cannot exceed 150% of federal poverty guidelines nor exceed 80% of your discretionary income. If you do not make these payments on time they could negatively affect your credit score and even lead to wage garnishment.

Income Based Repayment plans

There are three types of repayment plans offered depending on your financial situation. By choosing a plan that works best for you based on how much money you owe, what interest rate you want to pay and whether you have extra cash to put towards your debt. Each type is designed to help borrowers who have different budget situations manage their finances and minimize monthly payment amounts.

Pay As You Earn (PAYE)

This plan is set up like an installment plan where you pay only the minimum that is due each month. The amount that you owe increases whenever your salary changes. On average students graduate with approximately $30,000 in student loans. After 5 years of payments under PAYE your remaining balance will be forgiven. In order to receive the benefit of this program you must not miss a single payment.

Payoff Plan

When you select this option you agree to payback your entire loan balance within 15 years. Payments begin immediately after graduation and continue until the end of the repayment period. There is no grace period and you do not get to take advantage of any special programs.

Alternative Payment Plans

These are available to people who cannot afford to repay their loans right away. This includes graduates who have entered the workforce and those who are unemployed or self-employed. These plans allow borrowers to spread out the payments of their loans over a longer period of time. Borrowers cannot use them if they default on any previous loans. The total amount repaid is determined by taking the length of the alternative repayment term, dividing it by 12, and multiplying it by the current balance owed on the loan. So if you enter into an agreement for 30 years, divide the number by 12 and multiply it by the current outstanding balance. You will still have to make the same number of payments over the course of the alternative repayment term and will have to make the first payment before the alternative repayment begins.

Federal Undergraduate Student Loans

What do you need to know?

Before you apply for federal student loans, be sure to understand what you’re getting yourself into. It may seem easy enough to get a loan and use them wisely, but there are some big catches that you should be aware of before applying.

How do I file my FAFSA?

You can file your FAFSA online at www.fafsa.ed.gov. You will have to enter your income information, so make sure you accurately represent your financial situation. If you think your financial aid award amount might change once you fill out the application, you should reapply after the first awarding cycle ends. Remember, if you want to borrow money for school, you have to pay back those loans!

Why should I not take out private loans?

Private loans are generally higher interest rates than federal loans. But they are often easier to qualify for, since private lenders don’t care about how high your credit score is. While private loans are a great option for students who plan to graduate and start paying off their loans soon, they aren’t right for everyone. Be sure to consider your future plans carefully—if you graduate and decide you don’t want to become a doctor or lawyer, you won’t be able to refinance later. And if you drop out or fail out of school, you could end up paying much more for your education than you would with federal loans.

When should I start repaying my loans?

If you borrowed $10,000 over four years and paid 10% interest per year, you’d repay $1,250 in total. So if you plan to borrow $15,000 for college costs, you’d only owe $1,500 when you graduated. However, if you put off payments until after graduation, you could add almost $8,000 to your debt. Most people graduate with thousands in student loan debt, and if you default on it, you could lose everything you worked hard for.

Is there any way to reduce my loan repayment time?

There are various steps you can take to lower your monthly payment. If you‘re working while going to school full-time, ask your employer if you can work fewer hours. If possible, switch jobs to one offering flexible schedules so you can cut back on work hours. Also talk to your lender; if you find that you’re making less by changing jobs, your lender may be willing to offer you a lower interest rate. Finally, try to maximize your income, and save extra money along the way. If you earn more money, you can afford to pay more each month.

Can I consolidate my federal loans?

Yes, you can consolidate your federal loans. Consolidation reduces the number of individual loans you have to pay each month, simplifying your finances and potentially lowering your interest rate. But you do have to shop around for a good deal! There are many companies that offer this service, and you’ll need to compare their fees and terms before choosing a company to work with. Here are some things to keep in mind when comparing different companies:

Fees – Are there hidden fees for consolidation? Some companies charge fees for providing the service, while others require you to pay a fee upfront, then wait to receive your refund. Make sure you’re clear on what these fees are and whether you should expect them.

Interest Rate – Does the company guarantee its interest rate? If it doesn’t, it may be worth looking elsewhere. Do its competitors offer a similar low interest rate?

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