Federal Student Loans: Types, Eligibility, and Hacks to Apply!!

Federal student loans are money students, or their parents borrow from the government. It is used to pay off education bills and later repaid with interest. The interest is the cost of bearing the loan. It is paid out as a percentage of the overall loan amount.

Higher interest means you pay more for the same sum borrowed. In the US, more than 70% of students finance their education through Federal student loans. All top universities allow federal student aid for fees payout.

But there are ample other loan options. Starting from personal to mortgage loans, the possibilities are bountiful. But why prefer federal student loans and their benefits over other options?

Firstly, federal student loans charge much less interest. Secondly, the interest rate is fixed, unlike Private student loans. So, the premium you pay for the loan is not volatile. Lastly, the interest payable over federal student loans is much less than that on the best credit cards in the US.  

Types of Federal Student Loans

 The Federal Student Loans are the most common student loans in the US. Therefore, 42.2 million students have an ongoing federal student loan here. In essence, the US has several categories of federal student loans.  

Direct Subsidized and Unsubsidized Loans

The direct subsidized loans are the best option for you. Under this scheme, you won’t pay interest for the period you are in school. Moreover, there is a grace period of 6 months after that. Since then, the interest charges would be applied.

Under all federal student loans, you can repay the principal within 15 years. So, the same applies to direct subsidized interest as well. The same rules also apply to direct unsubsidized loans.

However, the difference is that you must start paying interest as soon as the loan amount is disbursed to your account.

Federal Perkins Loans

The perks of a Federal Perkins Loan are the same as the direct subsidized loan in the US. You don’t pay interest for the same period. At the same time, the lowest interest rates apply to this scheme.

In the meantime, there is a stark difference you must know of. The Perkins loans are not directly paid out from the Federal coffers. All prominent universities and colleges have a student fund for such loans.

Suppose the college considers you eligible on academic and financial grounds. You may get the Perkins loan grant directly.

Direct PLUS Loans

Are you searching for a dedicated federal loan for higher or vocational studies? Here’s an option that fits your needs. The Plus Loan is a federal loan option for undergraduate students, graduate or professional students.

Meanwhile, the students don’t receive it directly. Instead, the college sponsors the loan and pays for all academic expenses’ straightaway. However, the loan amount is disclosed. It is the full cost of the college minus other financial aid.

Direct Consolidation Loans

Can you cover all academic costs with one federal student loan scheme? Do you have multiple student loans running under your name? You can now apply for direct consolidation loans.

The purpose of this loan is simple. It will consolidate your existing loans into a single loan scheme. Hence lowering your monthly premium payable. People eligible for direct consolidation loans are also entitled to federal forgiveness programs.

Eligibility and Application Process

The first criterion for a student federal loan is that you must be a US citizen or an eligible non-citizen. You may also have valid SSNs, making you eligible to apply.

Meanwhile, the applicant or dependent student should be enrolled in a valid degree or certification program. At the same time, the degree should be from eligible colleges, centers, or trade schools.

Step-by-step guide on how to apply for federal student loans

Are you ready to apply for your first federal student loan? You must have enrolled in a valid course at an eligible college or university. After that, follow these steps accordingly:

1. Completing the Free Application for Federal Student Aid (FAFSA)

2. Reviewing and accepting loan offers

3. Accept the financial aid offer that your college sends you

Benefits and Features of Federal Student Loans

The interest rates of federal student loans are very low. This is the prime advantage we are talking about. Meanwhile, the federal loans come with a variety of different repayment plans. Often tailored to your financial conditions.

At the same time, the federal forgiveness programs are there. If you cannot repay the loan, you can apply for a forgiveness scheme. Lastly, you can also get tax rebates for taking out student loans. It applies to any loan you may apply for.

If you used the loan to pay academic costs, you could count on it for tax rebates. However, a maximum refund of $2500 is only provided in a financial year.

Repayment and Forgiveness Options

The loan repayment plans include Standard, Extended, Graduated, and Income-based options. Meanwhile, three factors are crucial here. These are your monthly premium, income, and your family size. Here’s a brief overview of the main repayment options applicable.  

Standard Repayment Plan

It is a default repayment plan that includes fixed monthly payback options only. You have to repay the loan under this scheme within a given period only. The standard repayment term is 10 years. But Student loan extended repayment options also exist. The payback can also extend to 30 years under specific conditions.

Graduated Repayment Plan

A graduate repayment plan is even more flexible. It starts with lower monthly payments at first. Then it increases every 2 years.

Extended Repayment Plan

You can go for this plan if you have an unstable financial status. Most importantly, this scheme will allow you to pay back the loan over an extended period of 25 years. However, you must submit valid documents that justify why you need more time for payback.

student loan income-driven repayment Plans

Here, the monthly repayment amount is not fixed. It depends on your income and your family size as well. The standard income-based repayment plans are:

• Revised Pay as You Earn Plan
• Pay as You Earn Repayment Plan
• Student loan income-driven repayment plan and
• Income Contingent Repayment Plan

Explanation of the Student Loan forgiveness and discharge options:

These options are your last resort. First, you must plan the best ways to pay the loan back. When you run out of options, you may seek the following options:

Public Service Loan Forgiveness (PSLF)

Are you into public service? Also, did you take federal student loans for your academics? And now, finding it hard to pay back it in whole or in parts? Don’t stress. There’s PSLF for you. This scheme allows public servants to have their outstanding federal student loans forgiven.

But there are two criteria to qualify:

1. You must be in service for at least 10 years at a stretch

2. You must have paid your premium for 120 months

The amount that remains unpaid can be waived under this scheme. That’s the crux of this scheme.

Teacher Loan Forgiveness

Are you into specialized studies? And took federal student loans to sponsor the same? Then, you may qualify for the teacher loan forgiveness. This program may waive off your direct subsidized or unsubsidized loan directly. Meanwhile, the scheme can forgive the highest amount of $17500.

Total and Permanent Disability Discharge

Disabled students get concessions and forgiveness on their federal student loan discharge. It also incorporates any teacher education assistance you opted for. The kinds of disabilities that apply here include:

• Any permanent disability
• Mental disability
• Any impairment that limits your ability to work
• Any chances of disability in the future

Risks and Considerations

You cannot opt for unprecedented loan volume if you opt for federal student loans. Undergraduates can get a maximum grant of $57500. Out of that, $23000 can be in subsidized forms.

Meanwhile, the graduate and professional students can qualify for the highest value of $138,500. Again, only $65000 of that can be in subsidized forms.

Disclaimer: The above limits are not for any single loan. Instead, it is the highest amount you may get as a loan, combining all student loan schemes you’ve applied for.

Interest rates and fees

The standard interest rates applicable to federal student loans vary from 6.5 to 9.08%. On delaying or missing payments, you have to pay penalties too. It may also be carried forward as a sum split into installments and be added to your monthly payable.

Credit score Implications

Did you miss your student loan payment? You have 90 days to clear off the dues. After that, the missed payment will be reflected in your credit reports. And the same will also hamper your credit score.

Conclusion

Before taking out Federal student loans, you must know your legal obligations. You and your guarantor are solely responsible for the repayment of the amount borrowed.

But you don’t have to start repaying right away. Take time. Finish your academics. Most federal student loans allow a grace period of 6 months after you end college. So, the golden rule is to borrow an amount you can repay.

Contact us if you have doubts about student loan schemes or loan amounts. Type your query in the comments section.

For More Financial Articles Click Below!!!

• Financial Dashboard: Your One-stop Personal Finance Guide
• Election Incoming! What Kind of Market Volatility You Should Expect?
• Everything You Need to Know About Google Pays Seamless Payment Methods