How Do Federal Student Loans Work
How Do Federal Student Loans Work?
Federal student loans are a great way for students to pay for their education. The federal government offers a variety of different loan options based on the student’s financial situation and the type of school they attend. If you are considering attending college, then you should learn more about how federal student loans work before making a decision about how you will pay for your education.
How Do Federal Student Loans Work?
How Do Federal Student Loans Work
A student loan is money borrowed from the government or a private lender in order to pay for college. The loan has to be paid back later, along with interest that builds up over time. The money can usually be used for tuition, room and board, books or other fees. But some students use their loan money for other stuff—like trips to Jamaica for spring break.
People get federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). Students and their parents share their financial information on the form, which is then sent to the student’s schools of choice. The financial aid office at each school crunches some numbers to figure out how much (if any) aid the student qualifies for and then sends them an “award letter” with all the details about their financial aid offer.
Note: This aid could come in the form of student loans, or it could come in the form of scholarships and grants. So that’s why I still recommend filling out the FAFSA—just make sure you only accept the free money. This is a no-loan zone, people.
Students apply for private student loans straight from the lender. But for federal loans and private loans, the student has to sign a promissory note (sounds scary, right?). That’s a legal document where the student agrees to repay the loan plus interest, and it includes all the terms and conditions of the loan.2 It’s kind of like signing away your freedom. Kidding, but not really.
federal loans
It depends on whether you’re an undergraduate student, a graduate or professional student, or a parent.
If you are an undergraduate student, the maximum amount you can borrow each year in Direct Subsidized Loans and Direct Unsubsidized Loans ranges from $5,500 to $12,500 per year, depending on what year you are in school and your dependency status.
If you are a graduate or professional student, you can borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of your college costs, as determined by your school, not covered by other financial aid.
If you are a parent of a dependent undergraduate student, you can receive a Direct PLUS Loan for the remainder of your child’s college costs, as determined by his or her school, not covered by other financial aid.
Remember, you can borrow less than your school offers and can request more loan funds later if you need to. You should borrow only what you need.
Why should I take out federal student loans?
Federal student loans are an investment in your future. You should not be afraid to take out federal student loans, but you should be smart about it.
Federal student loans offer many benefits compared to other options you may consider when paying for college:
The interest rate on federal student loans is fixed and usually lower than that on private loans—and much lower than that on a credit card!
You don’t need a credit check or a cosigner to get most federal student loans.
You don’t have to begin repaying your federal student loans until after you leave college or drop below half-time.
If you demonstrate financial need, the government pays the interest on some loan types while you are in school and during some periods after school.
Federal student loans offer flexible repayment plans and options to postpone your loan payments if you’re having trouble making payments.
If you work in certain jobs, you may be eligible to have a portion of your federal student loans forgiven if you meet certain conditions.
What should I consider when taking out federal student loans?
Before you take out a loan, it’s important to understand that a loan is a legal obligation that makes you responsible for repaying the amount you borrow with interest. Even though you don’t have to begin repaying your federal student loans right away, you shouldn’t wait to understand your responsibilities as a borrower. Get the scoop: Watch this video about responsible borrowing or browse the tips below it.
Be a responsible borrower.
Keep track of how much you’re borrowing. Think about how the amount 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 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 can also use the U.S. Department of Labor’s Occupational Outlook Handbook or career search tool to research careers and salaries.
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 you didn’t like the education you received.
Make payments on time. 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 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 also should 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 do I get a federal student loan?
To apply for a federal student loan, you must first complete and submit a Free Application for Federal Student Aid (FAFSA®) form. Based on the results of your FAFSA form, your college or career school will send you a financial aid offer, which may include federal student loans. Your school will tell you how to accept all or a part of the loan.
Before you receive your loan funds, you will be required to
complete entrance counseling, a tool to ensure you understand your obligation to repay the loan; and
sign a Master Promissory Note, agreeing to the terms of the loan.
Contact the financial aid office at the school you are planning to attend for details regarding the process at your school.
Is the U.S. Department of Education responsible for Health Education Assistance Loan (HEAL) Program loans?
Yes. On July 1, 2014, the HEAL Program was transferred from the U.S. Department of Health and Human Services (HHS) to the U.S. Department of Education (ED). However, it is no longer possible to obtain a new HEAL Program loan. The making of new HEAL Program loans was discontinued on Sept. 30, 1998.
Borrowers who have HEAL Program loans and members of the community may obtain more information as outlined below.
If you have HEAL Program loans and are not in default on those loans, contact your loan servicer for help with account-related questions. Use the contact information your loan servicer provided to you.
If you have HEAL Program loans and are in default on those loans, contact the Debt Collection Center for help with account-related questions.