Student Loans In the United States are designed to help make colleges more affordable for students and their parents. College Loans are a form of financial aid used to help Graduate or Undergraduate Students access their education.
College Loans/Student Loans play a major role in higher Education In the United States. Every year 20 million Americans attend College for that 20 million close to 12 million or 60% borrow annually to help cover costs.
Student Loans are funds provided to a Student for Educational expenses and are considered self-help financial ads because you need to repay the money loaned to you.
Student Loans may be used for any college-related expenses which include Tuition, Room and Board, Study Books, Computers, and Transportation Expenses.
The Federal Student Loans for which FAFSA is the Application are Subdivided into subsidized and Unsubsidized Loans. Federal student loans are subsidized at the undergraduate level only.
A Subsidized Loan is by far the best kind of Loan, but an Unsubsidized federal student loan is far better than a private student loan. Some states have their own loan programs, as do some colleges.
In almost all cases, these student loans have better conditions – sometimes much better – than the heavily advertised and expensive private student loans.
Federal Student Loans are the Investment in your Future you should not be afraid to take out Federal Student Loans and you need to be smart to take them.
There are lots of benefits and Advantages offered by Federal Student Loans compared to other options you may consider when you pay for College:
Features, Benefits & Advantages of College Loans-
- The Interest Rates on Federal Student Loans are almost always lower than that on Private Student Loans—and much lower than that on Credit Cards!
- You don’t need a Credit Check or a cosigner to get most Federal Student Loans.
- You don’t need to begin Repaying your Federal Student Loans until after you leave college or drop below half-time.
- If you demonstrate financial need, you can qualify to have the Government Pay your Interest while you are in school or College.
- Federal Student Loans May Offer Flexible Repayment Plans and options to postpone your Loan Payments if you’re having trouble making Payments.
- If you’re working in Certain Jobs, you may be eligible to have a portion of your Federal Student Loans forgiven if you meet certain conditions.
Things You Know Before Taking Out Federal Student Loans-
Before Taking federal Loans you need to know that the Loan is a legal obligation that you will be responsible for Repaying with Interest.
You may not have to begin Repaying your Federal Student Loans right away, but you don’t have to wait to understand your responsibilities as a borrower. As a responsible borrower, You need to:
- Keep track of how much you’re borrowing. Think about how the number of your Loans will affect your future Finances, and how much you can afford to repay. Your Student Loan Payments should be only a small percentage of your salary after you graduate, so it’s important not to borrow more than you need for your school-related expenses.
- Research starting salaries in your field. Ask your school for the starting salaries of recent graduates in your field of study to get an idea of how much you are likely to earn after you graduate.
- You need to understand the terms of your loan and keep copies of your Loan Documents. When you sign your Promissory Note You are agreeing to Repay the Loan According to the Terms of the Note even If you don’t complete your education, can’t get a job after you complete the Program, or didn’t like the Education you received.
- You are required to make payments on time even if you don’t receive a bill, Repayment Notice, or a reminder. You must pay the full amount required by your Repayment Plan, as Partial Payments do not Fulfill your Obligation to Repay your Student Loan on Time.
- Keep in touch with your Loan Servicer. Notify your Student Loan Servicer when you Graduate, withdraw from school, drop below half-time status, Transfer to another school, or change your Name, Address, or Social Security Number. You’re also able to contact your Servicer If you’re having trouble making your Scheduled Loan Payments. Your Servicer has several Options available to help you keep your Loan in good standing.
How to Apply For a Federal Student Loan (College Loans)-
Applying for Federal Student Loans looks like a daunting process but it’s actually Very Simple and can be done mostly Online.
To make it easier, we’ve provided the Complete Step By Step Application Process For College Loan Below:
- First, you’ll need to start by completing a FAFSA Form (or Renewal FAFSA for Returning Students). This form is required for both Current and Prospective US College Students (Undergraduate/Graduate) to determine their Eligibility for Financial Aid. It can be completed online and submitted directly to the Department of Education for Review.
- The Student receives the Financial Aid Award Letters anywhere from 3 days to 6 weeks after submitting their FAFSA. Each letter will outline all of the Relevant Information regarding the Financial Aid Package being offered.
- Upon Receiving these Letters, The Student will contact their chosen School’s Financial Aid Office to Accept the Student Loan Package being Offered.
- Once The Student Loan Package is accepted, The Student will simply Review and sign any necessary paperwork associated with the Loans, such as a Master Promissory Note.
Types of Student Loans (Education Loans)-
There are two major sources of Student Loans i.e. Federal Student Loans And Private Student Loans. There were 21 Million students enrolled in College in Universities this year and 8 Million of them received Federal Student Loans William D. Ford Federal Direct Loan Program which includes Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.
College Loans come in many shapes and sizes and the regulations for them can be different for them. Federal Student Loans are made directly from the Department of Education to the Borrower.
These Loans Cover the full academic year and are distributed in two payments, One each semester. With the Federal Student Loans, The School determines the types of Student Loans and How much you can borrow.
The loans may only be used to cover tuition and direct cost of living expenses. All Payments must be made either directly to the School or the Department of Education.
There are limits on how much you can borrow based on whether the Loan is Subsidized or Unsubsidized and whether it’s for Undergraduate or Graduate Study.
1. William D. Ford Federal Direct Loan Program-
The William D. Ford Federal Direct Loan Program is the largest Federal Student Loan Program which is made up of four Different Types:
- Direct Subsidized Loans: These loans are designed for Undergraduate Students with Financial needs. The Student is not to be liable for the Interest on the Loan while Attending School or in any deferment Periods. You can take out up to $5,500 each year to pay for the School. Unlike other loans, you’re not charged interest on the loans while you are studying in the School. All the Interest on the Loan is Paid by The Department of Education while you’re in school (at least half-time), during your grace period, and during any period of deferment.
- Direct Unsubsidized Loans: These Loans are available for Undergraduate, Graduate, and Professional Degree Students. The parent would be responsible for the Interest on the Loan from The First Month. The Lender is the Department of Education, to which all the Loan Payments would be made. The Direct PLUS Loan for Parents has a maximum Lending Size equal to the cost of Attending College Minus other Financial Aid the Student has to receive. You can take out a maximum of $20,500 Every Year to Pay for The College, School, and Interest accrues on your account while you’re Studying in the School.
- Direct PLUS Loans: These Loans are Available for both the Parents and the Students. The parent would be responsible for the interest on the loan from the first month. The lender is the Department of Education, to which all the Loan Payments would be made. The Direct PLUS Loan for the Parents has a maximum Lending Size equal to the cost of attending College minus other Financial Aid the Student has to receive. The Lender for Direct PLUS Loans for Graduates is the Department of Education, to which all the Loans Payments would be made. The maximum Lending Size is the Cost of Attendance Minus any other Financial Aid the Student has received. You can use a Federal Direct PLUS Loan to cover the Total Cost of Attendance.
- Direct Consolidation Loan: If you have other forms of federal loans, you can consolidate them into one loan and one easy payment with a Direct Consolidation Loan. And, if your current federal loans are ineligible for PSLF, you can consolidate them with a Direct Consolidation Loan to qualify. Direct Consolidation Loans are fixed-Interest Loans with Flexible Options, based on your Ability to Repay. There is no fee to Consolidate, though you can only do it once. It could lower your monthly payments but also could extend the amount of time needed to pay off the loan.
2. Federal Perkins Loan –
Federal Perkins Loans are used for Undergraduate, Graduate, And Professional Degree Students with Financial needs. Perkins Loans have lower Interest Rates than other loans. Eligible Borrowers get Perkins Loans at 5% Interest.
These Loans are dependent according to your Financial needs and the availability of funds at your chosen university. The Perkins Loans were more desirable than Stafford Loans because they were subsidized (the government paid the interest while you were in school) and had a fixed interest rate of 5%.
Other advantages of the Perkins Loan included a longer Grace Period (nine months) before Repayment began and special loan forgiveness provisions.
Because of their favorable terms, Perkins Loans were reserved for students who show exceptional financial need. The loans were granted by a college and not all schools participated.
3. Stafford Loans-
These Loans are More common than the Perkins Loans and the money for these types of Loans comes directly from the Federal Government in the program called the Federal Direct Student Loan Program (FDSLP).
There are two types of Stafford Loans i.e. Subsidized and Unsubsidized. The type helps determine your Interest Rate and Maximum Loan Amount.
- Subsidized Stafford Loans: If your loan is subsidized, you won’t be responsible for making any payments until after you graduate. Your interest rate typically should be 3.76% in a school year. The government pays your interest for you while you’re in school. Subsidized loans are reserved for students who can demonstrate financial hardship. Most go to students whose families’ annual income is less than $50,000.
- Unsubsidized Stafford Loans: If you have an Unsubsidized Loan, you’re Responsible for Paying off all the interest. The interest rates were fixed at 3.76% while you’re in school, but Payments are typically deferred or postponed until after you graduate. All the Students are Eligible for these Types of Student loans. Your Annual Stafford Loan Limit for Unsubsidized Loans Ranges from $5,500 to $12,500, depending upon your School Year and whether you are claimed as a dependent on someone’s Tax Return. You’re Eligible for the Larger College Loan if you’re Financially Independent. If you’re Financially Dependent but your Parents are Ineligible for Parent PLUS loans, you’re Permitted the Same Maximum College Loans as if you were Independent.
4. Private Student Loans-
These Loans are also known as Alternative College Educational Loans which are the option for both Students and Parents who still can’t meet Financial Obligations for Attending College even with money Available through Federal Loans.
Private Student Loans are More Closely Resemble Personal Loans than Student Loans and Parent Loans. You’re Eligibility and Interest Rate depends on your Credit History.
Your Interest Rate for these Loans may be Fixed or Variable and is Typically Higher than with Federally Guaranteed Education Loans but Lower than with other debts like Credit Card debt. Private Student Loans are generally Two Types:
- School-Channel Loans: These Loans offer borrowers Lower Interest rates but generally take longer to process. These Loans are certified by the Schools which means the School signs off on the borrowing amount, and the Funds are disbursed directly to the School. The Certification means only that the School Confirms the Loan Funds will be used for Educational Expenses only and agrees to hold them and disburse them as needed. Certification does not mean that the school approves of, recommends, or has even examined the terms (conditions) of the Loan.
- Direct-To-Consumer Private Loans: are not certified by the School and Schools don’t Interact with a direct-to-consumer Private Loan at all. The student simply Supplies Enrollment Verification to the lender, and the Loan proceeds are disbursed directly to the Student. While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly in some cases, in a matter of days. Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes since there is no third-party certification that the amount of the loan is appropriate for the education needs of the student in question, or that it will be used only for education.
5. Health Professions Student Loans (Medical Education Loans)-
Medical Education Loans are specialized Student Loans that Exist for Students who are Studying in specific areas of Medicine such as Nursing, Sports Medicine, or Veterinary Medicine. Each Loan has its own Requirements for Accepted Areas of Study and Financial Needs.
Despite your Financial Standing or Field of Study, you can find an Education Loan that suits your Needs. It can help you and your family to fund your Higher Education and reduce the Financial burden of School or College.
Education Loan Breakdown-
Check out the below Table for a breakdown of each Type of Student Loan and Its Current Interest Rate.
|Loan||Need-Based?||Subsidized?||Sponsor||Borrower||Interest Rate (Loans disbursed after July 1, 2017)|
|Direct Subsidized Loan||Yes||Yes||Federal government||Student – Undergraduate||4.29% (fixed)|
|Direct Unsubsidized Loan||No||No||Federal government||Student – Undergraduate||4.29% (fixed)|
|Direct Unsubsidized Loan||No||No||Federal government||Student – graduate/professional||5.84% (fixed)|
|Perkins||Yes||Yes||Federal government||Student||5% (fixed)|
|Direct PLUS Loan||No||No||Federal government||Parent (or graduate/professional student)||6.84% (fixed)|
|State and Private Loans||No||No||Banks, colleges, foundations, state agencies||Usually students with a creditworthy cosigner||Usually higher than federal rates; variable|
Difference Between The Public Student Loans And Private Student Loans-
- The Interest Rates on Federal Education Loans are Fixed. The Interest Rates on Private Student Loans can be variable or fixed and are usually higher.
- Undergraduate borrowers who can demonstrate financial need could receive a federal subsidized loan, meaning the government pays the interest until they graduate. Private loans are never subsidized. You pay all the interest.
- Federal loans offer flexible repayment options and loan forgiveness programs. Private loans have few repayment options and no loan forgiveness programs.
- Federal loans don’t have to be repaid until you graduate or drop below half-time status as a student. Many private loans ask for repayment while you’re still in school.
|Federal Student Loans||Private Student Loans|
|You will not have to start repaying your federal student loans until you graduate, leave school, or change your enrollment status to less than half-time.||Many private student loans require payments while you are still in school.
|The interest rate is fixed and is often lower than private loans and much lower than some credit card interest rates. View the current interest rates on Federal student loans.||Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay.|
|Undergraduate students with financial needs will likely qualify for a subsidized loan where the government pays the interest while they are in school on at least a half-time basis.||Private student loans are not subsidized. No one pays the interest on your loan but you.
|You don’t need to get a credit check for most federal student loans (except for PLUS loans). Federal student loans can help you establish a good credit record.||Private student loans may require an established credit record. The cost of a private student loan will depend on your credit score and other factors.|
|You won’t need a cosigner to get a federal student loan in most cases.||You may need a cosigner.
|Interest may be tax-deductible.||Interest may not be tax-deductible.|
|Loans can be consolidated into a Direct Consolidation Loan. Learn about your consolidation options.
|Private student loans cannot be consolidated into a Direct Consolidation Loan.|
|If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.||Private student loans may not offer forbearance or deferment options.|
|There are several repayment plans, including an option to tie your monthly payment to your income.||You should check with your lender to find out about your repayment options.|
|There is no prepayment penalty fee.||You need to make sure there are no prepayment penalty fees.|
|You may be eligible to have some portion of your loans forgiven if you work in public service. Learn about our loan forgiveness programs.||It is unlikely that your lender will offer a loan forgiveness program.|
|Free help is available at 1-800-4-FED-AID and on our websites.||The Consumer Financial Protection Bureau’s private student loan ombudsman may be able to assist you if you have concerns about your private student loan.|
Top Federal Loan Servicers-
- FedLoan Servicing (also known as PHEAA): This company was established to directly support the US Department of Education in the servicing of federal student loans.
- Great Lakes: This is a Non-Profit Organization that is dedicated to helping College Students by working with both the US Department of Education and Private Lenders to make every step in the Borrowing and Repayment Process Easier.
- Navient: One of the select groups of Companies chosen to Service Student and Parent Federal Loans by the US Department of Education. Their loan Servicing Department helps Customers through both Financial Literacy Tools and broad-based Servicing.
- Nelnet: This Company works with the US Department of Education in assisting Borrowers through every stage of their Loan’s Life Cycle: during School, during their Grace Period, and Throughout the Education Loan Repayment.