According to the statistic reports, in 2018, Federal Student Loan Programs lent more than $91 billion as student credits. The overall loan balance of the US including the program’s debts has been reached to $1.5 trillion in total. More than 40 millions of the student are struggling with repayment of their education loans. Thus, each year more than a million borrowers go into the loan default. There is something wrong with repayment systems of these Federal Student Loan Programs. Why these cases occur, one of the main reasons is an unplanned decision made by the borrower. It is not so challenging to apply for loan programs, but dealing with repayment policy in the long-run period may put pressure on your shoulders.
That is why before applying for any Federal Student Loan Programs, you have to assess policy conditions and how much this loan will cost you in the further. In this article, we are going to guide you on what kinds of programs exist, how you can apply them and how costly they could be for you in the long-run.
Overview of Federal Student Loan Programs
Federal Student Loan Programs are designed and supervised by the US Department of Education in the purpose of increasing the chance of the low-income people and undergraduate students to take the credit. At the moment, the distribution of new Federal student loans is realized by the only active Federal Student Loan Program - the William D. Ford Federal Direct Loan Program. Student loans are distributed under this program through four different directions.
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Parent PLUS loan
- Grad PLUS loan
- Direct Consolidation Loans
Even though these loans were distributed through FFEL ( Federal Family Loan) program, after the date of 1st July 2010, the Federal Direct loan program started to give these student loans. However, if you have taken money through the FFEL program, you are still considered as a contractor of the William D. Ford Federal Direct Loan Program. And you are obliged to make all the payments for any borrowing taken from this program.
Direct Subsidized Loan
This type of Federal Student Loan Program allows the graduate students to borrow money with low and fixed interest rate and flexible repayment conditions. This loan deferred after you graduate. To be eligible for Direct Subsidized Loans, you are not required to have a credit score or any level of income. It is because the Federal Government determines the interest rates on Direct Subsidized Loans and these rates are fixed.
Benefits:
- Providing fixed interest rates - 5,05% ( for 2018- 2019)
- To qualify, you are required to prove financial need which is defined by FAFSA (free application for Federal Student Aid)
- During the time you are in the minimum half-time school, interest rates on your loan are paid by the government, and this also includes a grace period, authorized deferment.
- During the time you are attending the school, you are not required to make any payment.
- There are several alternative repayment plans such as income-based plan.
Eligibility requirements:
- To be an undergraduate student
- To be US citizen, national or eligible non-citizen
- To prove of financial need defined by FAFSA
- Not having any defaulted federal student loan
- To receive a high school diploma
- To Attend at least a half-time degree program
- To cover overall eligibility conditions for FSA
Direct Unsubsidized Loans
This is the other type of Federal Student Loan Program which allows both graduate and undergraduate students to take the loan with a fixed and low-interest rate and flexible repayment options for their educational expenses. The main difference of this program from Unsubsidized Direct Loans is it does not require to demonstrate financial need to qualify. Another difference is that the borrower is entirely responsible for paying all amount of the debt including interest and principle. And also, when you take the credit through the Unsubsidized Direct Loans, you are responsible for making repayment on interest from the date you borrowed.
Benefits:
- For an undergraduate student, an interest rate is 5.05%
- For graduate and professional student, an interest rate is 6.6%
- During you are enrolled at the school, you don’t have to repay
- No need to prove financial need
- Several repayment plan options
Eligibility requirements:
- To be an undergraduate student
- To be US citizen, national or eligible non-citizen
- Not having any defaulted federal student loan
- To receive a high school diploma
- To Attend at least a half-time degree program
- To cover overall eligibility conditions for FSA
Parent PLUS loans
This type of Federal Student Loan Program is intended for assisting undergraduate students and parents of dependent students in covering their educational expenses. PLUS loan works directly so parents of dependent students could borrow money on behalf of the students. All you are going to need is to be enrolled at least half-time, and your parent has to pass a regular credit check. If you have already graduated or you are a professional degree student who is enrolled at least half-time at available school, you can apply for PLUS loan in the purpose of your academic study.
Benefits:
- Fixed interest rates 7.6%
- Flexible loan limits you can borrow
- Multiple alternative repayment plan options
Eligibility requirements:
- Available for only parents of dependent undergraduate students
- To enroll at least half-time school
- You and your parents must be US citizens, permanent residents or eligible non-citizens
- Not having any defaulted federal student loan
- Your parents must guarantee that credit will be used for education purposes
Direct Consolidation Loan
This is one of the most popular types of Federal Student Loan Programs which allows you to combine several different loans under the unit loan with the fixed average interest rate. Direct Consolidation Loan could be advantageous and beneficial, especially for that it makes a couple of various loans combine and provide lower monthly payments.
Benefits:
- Lower monthly payments
- Flexible repayment options which provide some deductions on interest rates
- Allows to change the lender
- When you complete 20 or 25 years regular payments on your loan, your remaining debt amount is forgiven. In most cases, this option saves you a considerable amount of money.
- If you have consolidated your loan, you can be eligible for Public Service Loan Forgiveness Program.
Eligibility requirements:
Only the following loan could be eligible: Plus Loan, Direct Subsidized loan, Stafford Subsidized loan, Supplemental Loans for Students(SLS), Direct Unsubsidized loan, Stafford Unsubsidized, Federal Perkins Loans, FFEL Loans, Health Education Assistance Loans, Federal Nursing Loans.
Additionally, you should take into account that the Direct Consolidation Loan will increase the length of payment. That is why the interest rate on overall loan debt is rising even though monthly payments are lower than standard payments.
Final note
By taking all said into consideration, Federal Student Loan Programs offer a list of excellent options to continue your education. Remember, any amount you spend on education is not your expense but an investment. On the other hand, borrowing money from the Federal Student Loan Program significantly affect your future financial plan. That is why, before applying, try to evaluate Costs and Policy Options for Federal Student Loan Programs. If you have any question or if you need detailed information, please do not hesitate to call our Student Loan Resolved helpline.
