Note that the government is allowing an interest-free pause for repayment on most federal student loans through the end of September 2020 to help ease the impact of the coronavirus pandemic. Many other lenders and servicers are also offering relief options during this time. Check out our Student Loan Hero Coronavirus Information Center for details and news.
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For most students, covering the cost of education means taking out student loans, especially as the price of tuition and room and board goes up. Even the cost at public universities — typically a much cheaper option than private schools — has increased 29.8% in the decade ending in the 2018-2019 school year.
The U.S. Department of Education’s student loans are a popular choice if you are looking for affordable funding for college.
There are seven kinds of federal loans available and eligibility for them varies slightly for them. Navigating the federal loan program can feel overwhelming so we’ve come up with this guide to help you go through the choices available.
- 7 kinds of U.S. Department of Education student loans
- How to apply for federal student loans
- How to find your federal student loans after you receive them
The loans offered by the federal government tend to have lower interest rates and generous repayment terms than private loans. The downside? Navigating the federal loan system can feel overwhelming.
There are many different loans available but you might be eligible for only a select number of them, so it’s important to understand their differences.
The federal government offers different loans based on your education level (undergraduate versus graduate or professional school) and income.
Each loan has its own eligibility requirements, interest rates and repayment terms. Here are the seven kinds of loans that the Department of Education currently manages (though two of these programs no longer offer new loans) :
1. Direct subsidized loans
2. Direct unsubsidized loans
3. Parent PLUS loans
4. Grad PLUS loans
5. Direct consolidation loans
6. Perkins loans (discontinued)
7. Family Federal Education Loans (discontinued)
Direct subsidized loans are one of the best options you can use to pay for school. With subsidized loans, the Department of Education pays the interest that accrues while you’re in school at least half time, during your grace period after graduation, and if you put your loans into deferment.
Even when you’re responsible for paying the interest, the rates are low. As of June 2020, direct subsidized loans have a 4.53% interest rate.
However, these unique loans are available only to undergraduate students with financial need. The federal government issues the loan, but your college decides if you meet the financial requirements and how much you can borrow. Each school may have different criteria, so you might receive more in subsidized loans from one school than another.
You are only eligible to receive subsidized loans for 150% of your program’s length. For example, if you attend a four-year school to earn a bachelor’s degree, you can receive loans only for six years. If it takes longer than that to finish your degree, you will have to take out other forms of loans.
There are also limits on how much you can receive in subsidized loans each year:
- First-year undergraduate: $3,500
- Second-year undergraduate: $4,500
- Third-year and up undergraduate: $5,500
Available to both undergraduate and graduate students, direct unsubsidized loans are another affordable option to pay for school.
Like direct subsidized loans, direct unsubsidized loans also have low interest rates: 4.53% for undergraduate students and 6.08% for graduate or professional degree borrowers. The key difference between the two types of loans is that the government will not cover the interest that accrues on unsubsidized loans.
To qualify for an unsubsidized loan, you must be enrolled at least half time in school. Unlike subsidized loans, you do not have to show financial need to be eligible for a loan.
Unsubsidized loans are eligible for all IDR plans and PSLF.
Some Department of Education student loans are available to parents, as well. For those who want to help their children pay for school, you can take out a parent PLUS loan with an interest rate of 7.08%.
You can borrow up to the total cost of attendance minus any other financial aid your child receives. There is a disbursement fee with the loan: It’s 4.236% of your loan total, if the loan is taken on or after Oct. 1, 2019, and before Oct. 1, 2020.
You can take out a parent PLUS loan if you have a dependent who is enrolled at least half time at an eligible school for pursuing an undergraduate degree. The loan is in your name, so you are responsible for repaying the debt after your child graduates.
Credit history and parent PLUS loans
Unlike in the case of most other federal loans, the government does consider your credit history when evaluating your application for a parent PLUS loan. If your credit doesn’t meet their criteria, you might need an endorser on the loan who agrees to make payments if you fall behind.
Another major difference is that payments on parent PLUS loans become due right away, not after your child’s graduation. You can request a deferment while your child is in school, but the loans will continue to accumulate interest and you’ll pay more over time.
Parent PLUS loans are eligible for the graduated repayment and extended repayment plans. And parent PLUS loans do qualify for PSLF, but they are ineligible for any IDR plan — the repayment options that are the most valuable to PSLF-seekers — unless they are first consolidated with a direct consolidation loan.
If you’re a student going to graduate school or pursuing a professional degree at least half time, you might qualify for a student PLUS loan. Like parent PLUS loans, grad PLUS loans have a 7.08% interest rate and require a credit check.
However, PLUS loans made out to students have more benefits than those made out to parents. Graduate PLUS loans are eligible for all IDR plans and qualify for PSLF without needing to be consolidated beforehand.
If you have federal loans, then juggling multiple loan servicers and payment due dates can be stressful. One way to simplify your finances is to consolidate them into one loan with a direct consolidation loan.
Combining your loans with a direct consolidation loan can give you access to more IDR plans and even help you qualify for PSLF.
When you consolidate, your new interest rate is based on the weighted average of the rates on your old loans. You might also be able to extend your repayment term and reduce your monthly payments.
The following loans are eligible for direct consolidation:
- Direct subsidized
- Parent PLUS loans
- Graduate PLUS loans
- Perkins loans
- Some Family Federal Education Loans
To be eligible for consolidation, the loans must be in repayment or you must be in your grace period after graduation.
If your loan is in default, you need to contact your loan servicer to make payment arrangements. If your wages are being garnished because of student loan default, you cannot consolidate the loans until the wage garnishment order has ended.
The federal Perkins loan program ended in 2017. Current borrowers with Perkins loans can still enjoy their benefits, but the government will not issue any new loans through this program.
Perkins loans were meant for low-income students, and were a cheaper option than some other forms of debt. With an interest rate of just 5% and a nine-month grace period, they were one of the better forms of financial aid available.
However, Perkins loan borrowers should know that these loans have limitations. Perkins loans are ineligible for PSLF. Plus, they don’t qualify for income-driven repayment plans. In some cases, you might qualify for both PSLF and IDR plans by consolidating your debt with a direct consolidation loan.
As of 2010, Family Federal Education Loans (FFEL) are no longer available to students. For those who already have FFEL debt, however, these loans were guaranteed by the government but issued directly by private lenders.
FFEL debt is ineligible for PSLF. The only way you can qualify for PSLF is if you consolidate your loans with a direct consolidation loan. If you’ve made payments toward your loans before consolidating, they do not count toward the 120 necessary payments. The Department of Education will only apply payments made on the consolidation loan.
Finding a way to pay for school can be overwhelming, but Department of Education student loans can be useful tools to fund your education. Thanks to lower interest rates and added benefits, federal student loans can make it easier to afford your education.
If you’re in need of financial aid for the upcoming semester, the first step is filling out the Free Application for Federal Student Aid (FAFSA) to access grants, scholarships and federal student loans.
Now that you have your federal student loans, you will want to keep track of them. If you have more than one loan from the government, this can get confusing, especially if you are a busy student or working graduate. Thankfully, federal student loans are not hard to find.
You can locate your federal student loan information using your My Federal Student Aid (FSA) ID account. This account is connected to the Department of Education’s National Student Loan Data System (NSLDS), which tracks student loans.
This data system is the keeper of the information you will need to identify your individual loans and almost anything you need to know about them.
The NSLDS shows not only the amount you owe on each individual loan, but also each loan’s status from default to deferment to paid off, and the type of loan (subsidized or unsubsidized, for example). One thing to remember: You won’t find your private loans or Parent PLUS loans borrowed in your parent’s name on your NSLDS dashboard.
Your student loan servicer is responsible for the billing of your federal loans. Signing up for an automatic debit payment via your federal loan servicer is a good way to ensure that you never miss a payment. And according to Federal Student Aid, if you have a direct loan to pay for school, you will be eligible for a 0.25% interest rate deduction if you use automatic payments to pay your loans.
Maya Dollarhide contributed to this article.
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1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
Information advertised valid as of 4/22/2021. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.22% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.12% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.29% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.22% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 4/1/2021. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org)..
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
Undergraduate Rate Disclosure: Variable interest rates range from 2.76% – 7.14% (2.76% – 7.14% APR). Fixed interest rates range from 3.01% – 7.50% (3.01% – 7.50% APR).
Graduate Rate Disclosure: Variable interest rates range from 2.19% – 6.73% (2.19% – 6.73% APR). Fixed interest rates range from 2.89% – 7.09% (2.89%-7.09% APR).
Business/Law Rate Disclosure: Variable interest rates range from 1.36% – 9.54% (1.36% – 8.82% APR). Fixed interest rates range from 4.13% – 9.84% (4.13% – 9.12% APR).
Medical/Dental Rate Disclosure: Variable interest rates range from 1.36% – 8.34% (1.36% – 8.04% APR). Fixed interest rates range from 4.03% – 8.64% (4.03% – 8.34% APR).
Parent Loan Rate Disclosure: Variable interest rates range from 2.10% – 7.41% (2.10%-7.41% APR). Fixed interest rates range from 4.69% – 7.83% (4.69% – 7.83% APR).
Bar Study Rate Disclosure: Variable interest rates range from 4.45% – 9.60% (4.45% – 9.53% APR). Fixed interest rates range from 7.39% – 12.94% (7.38% – 12.81% APR).
Medical Residency Rate Disclosure: Variable interest rates range from 3.55% – 7.05% (3.55% – 6.77% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.07% APR).
Variable Rate Disclosure: Variable Rates are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of March 1, 2021, the one-month LIBOR rate is 0.11%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates require a 5-year repayment term, immediate repayment, a graduate degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.