:: What Are My Loan Options? ::
After you've used your grants, scholarships and personal savings to pay for college, you may need additional funds to cover your school expenses. Fortunately, federal loans are available to help.
A student loan is a serious obligation. It must be repaid whether you earn your degree or withdraw before graduation. If your loan isn't repaid, you could damage your credit score and face wage garnishment.
Private vs. Federal Loans
Exhaust all federal loan options before considering private (sometimes called alternative loans) which can have higher interest rates and fewer flexible repayment options. Federal loans offer options like deferments and forbearance if you can't make payments. You must complete the FAFSA to be eligible for federal loans. Also, avoid paying for school expenses with your credit card.
Types of Federal Loans
Direct subsidized Stafford loans are low-interest loans based on financial need, and are only available to undergraduate students. The federal government pays the interest while you’re in school at least half-time, and during specified loan deferment periods. Subsidized loans first disbursed prior to July 1, 2012 also receive interest benefits during the six-month grace period after graduation or after you drop to less than half-time enrollment. If you received a Direct Subsidized Loan that was first disbursed between July 1, 2012, and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period.
Direct unsubsidized Stafford loans are low-interest loans not based on financial need. You’re responsible for all interest accrued from the date the loan is disbursed. This includes the time you attend school, the grace period and any type of loan deferment.
Direct PLUS loans are low-interest loans made to graduate and professional students, and to parents of dependent undergraduate students. PLUS loans aren’t based on financial need. The borrower is responsible for all accrued interest.
If you have loans issued before July 1, 2010, you may have Federal Family Education Loan Program (FFELP) loans. All federal loans made after that date are part of the Federal Direct Loan (DL) Program.
Loan Limits and Interest Rates
The amount you can borrow depends on several factors, including your level of financial need, other sources of aid, cost of attendance and the length of your school's academic year. More specific information can be found at the Federal Student Aid website.
Interest rates change each July. For July 1, 2016 through June 30, 2017, subsidized and unsubsidized undergraduate rates are 3.76 percent. Interest rates for Direct PLUS Loans are 6.31 percent and interest rates for Direct Unsubsidized Loans for graduates or professional students are 5.31 percent.
If you have loans from previous years, you can view Federal Student Aid's historical interest rate chart.
The Application Process
To receive federal loans, you must complete the Free Application for Federal Student Aid (FAFSA). Once you submit your FAFSA, you'll receive a Student Aid Report (SAR). If you have an email address on file, the Department of Education will send an email within three to five business days with instructions for viewing your SAR online. The schools you listed on your FAFSA will also receive a copy of your SAR. They'll review your information and determine how much financial aid you're eligible to receive.
At this time, you'll receive a Master Promissory Note (MPN), which is a legal agreement of repayment that can be provided in either an electronic or paper format. You may be eligible to receive multiple loans under one MPN for a maximum 10-year period. After your loan is approved, the loan funds are sent to your school.