Federal Student Loan Review
For most students, federal student loans will be the most affordable option if you need to borrow money to pay for university. Ministry of Education loans come in a variety of forms - from direct subsidized and unsubsidized loans for lower education students to a direct PLUS student loan for graduate students. This federal student loan review will break down all of your options and answer your questions such as, "What is a Direct PLUS loan?" so you can find the best loan to help you complete your degree.
What we like about it
Federal student loans offer affordable fixed rates - 2.75% for Direct subsidized and unsubsidized loans for lower education students and 4.30% for Direct unsubsidized loans for graduate students. If you take out a subsidized loan, the Ministry of Education pays your interest until you start paying six months after you leave school.
Parents and graduate students can also use a federal PLUS loan to help pay for their child's education or their own school fees. These loans are more expensive than subsidized and unsubsidized loans. The current interest rate for a direct PLUS loan is 5.30%.
Both Direct subsidized and unsubsidized student loans and Direct PLUS student loans are eligible for public service loan waiver, which forgives your remaining balance if you work for federal, state, local or tribal government. Certain not-for-profit employees are also eligible.
Things to Consider
You must complete the FAFSA every year in order to be eligible for federal student loans. You also run up against limits on how much you can borrow at each level. Direct student loan limits vary based on your school year and whether you are a dependent or self-employed student.
Currently, the most you can borrow per year in a subsidized loan is $5,500 - and that's only for third-year students and beyond who are eligible - the rest of your loans up to the limit must be unsubsidized, which means they accumulate interest while you're still in school. You can use a PLUS loan from a parent or student to cover the full cost of attendance.
You also need to watch out for the costs. Although interest rates look good, tuition fees contribute to the total cost you have to borrow. Direct subsidized and unsubsidized loans come with 1.062% loan money, while the student loan PLUS comes with a hefty 4.236% loan money.
What you need to know
Federal student loans come in two variants: The first is subsidized and unsubsidized Direct student loans, and the second is Direct PLUS student loans. Both types come with different rates, interest rates and limits.
Both undergraduate and graduate students can make use of subsidized and unsubsidized student loans. You can borrow up to $12,500 (with no more than $5,500 subsidized) per school year if you are an independent student in your third year or higher. First and second year students and those who are still claimed as dependants have lower limits. The current interest rate is 2.75% for undergrads and 4.30% for graduate students. You also have to pay 1.062% tuition fee.
Graduate students and parents of students can use federal PLUS loans to help cover the cost of attending a school. These federal student loans have no borrowing limit, so you can borrow up to the total cost of the visit (as certified by the school). The interest rate is currently 5.30% and you pay 4.236% loan money.
To apply for a federal student loan, follow these steps:
- Complete the FAFSA. This document is your gateway to all forms of federal financial assistance. You must complete it every year in order to make use of federal student loans.
- Wait for a letter from your school. It will send you an offer of financial assistance with the loans and scholarships for which you are eligible.
- Discuss it with your school's financial aid office. You should work with your school's financial aid office to decide how much of your available federal student loans you want to use for each school year.
- Full admission guidance. This 20-30 minute online course explains your obligation to repay your student loans.
- Sign your promissory note. This document shows that you understand the amount you are borrowing and how much you owe. If you sign the document, you can receive your federal student grant.
Collateral and criteria
Federal student loans are unsecured, which means you don't have to give collateral to receive them. However, if you are behind on your payments and default on your student loans, the Ministry of Education can garnish your tax refunds and wages to recover the money you borrowed, plus any interest and fees.
Federal Student Loans vs. Sallie Mae
Sallie Mae offers private student loans to both graduates and undergraduates. You don't have the same loan restrictions as federal student loans, but you're likely to see higher interest rates - Sallie Mae's fixed rates for undergraduate students range from 4.50% to 12.35%. There is no charge, but you may need a co-signatory from Sallie Mae to approve you for a loan or a lower interest rate. Generally, undergraduate students will be better off exhausting their federal options before turning to a private lender like Sallie Mae.
Federal Student Loans vs. Discover Private Student Loans
Discover has some of the best private student loans out there. For a fixed-interest loan, interest rates range between 4.74% and 12.39%. It never charges for student loans, and it gives you a good reward for every year you hold a 3.0 GPA or higher. But even this reward can't help you catch up on federal student loan rates. You'll usually be better off exhausting your federal options before you turn to Discover.
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