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In general, it makes sense to take out federal loans over private loans. They usually have lower interest rates, more generous repayment terms, and you get access to benefits like income-driven repayment plans. But in some situations, you might lose federal financial aid eligibility and be unable to take out federal student loans.
However, if you lose your eligibility for federal student loans, that does not mean you are out of options. You may be able to regain access by taking action.
Student loan requirements and financial aid eligibility
To be eligible for federal loans, you must be a valid U.S. citizen or eligible noncitizen and have a valid Social Security Number. To receive loans, you need to enroll in an accredited institution and show academic progress.
You will also need to show proof that you completed high school, such as submitting your diploma or General Educational Development (GED) certificate.
But even if you meet these requirements, you can still lose your eligibility. Below are four common situations and how to regain eligibility.
Defaulted on student loans
If you defaulted on your federal loans, and are now planning to go back to school, you need to get out of default before the government will allow you to take out new loans.
Your loans are considered in default if they are overdue for 270 days or more. To get out of default, you must either pay your loans in full or enter a rehabilitation program. Alternatively, you can consolidate your loans with a private lender, paying back the federal loans in full.
To rehabilitate your debt, federal regulations require you to make nine consecutive on-time payments within ten months. Once you have completed the ten months of payments, your credit will improve, and your account will be back in good standing, regaining your financial aid eligibility.
To maintain financial aid eligibility, you need to show satisfactory academic progress (SAP). One measure of SAP is your grades. The government requires students to maintain at least a C grade-point average, but some schools have their own standards as well.
Additionally, you have to demonstrate that you are on track to graduate. Federal regulations state that you must complete your degree with 150 percent of the program’s time frame. For example, if you are pursuing a bachelor’s degree, you would need to complete the program in six years. If it took longer than that, you would be ineligible for federal aid.
If your grades start slipping and you lose access to federal student loans, you may be able to get them back. You can file an appeal directly with your school explaining why your grades slipped. In extenuating circumstances, such as an illness, death in the family, or other situation, the school can reestablish your eligibility.
In other cases, you can at least be put on probation. From there, you can submit an academic plan, and explain how you plan to improve your grades. You might include how you’ll work with a tutor, join a study group, or take a remedial course. The school can make you eligible for federal aid again as long as you adhere to the academic plan.
Convicted of a drug offense
According to the National Center for Policy Analysis, one in 400 students is rejected for federal student aid because of a drug conviction.
If you lost your financial aid eligibility because of a drug offense, you might be able to regain it early. To become eligible, you can complete an approved drug rehabilitation program or pass two random drug tests handled by a drug rehabilitation company.
Once you complete these requirements, you can contact your financial aid office and get the federal aid you need.
Received more student aid by accident
If you accidentally received more federal aid or grants than you were supposed to get, you may become ineligible for future loans. Even if it was a mistake on the lender’s part, you bear the responsibility to fix it.
In most cases, to regain your eligibility, you need to repay the excess amount. You can pay it back all at once, or, if doing so would be a hardship, you can set up a repayment plan.
Once the amount is repaid, you will be able to get federal aid.
Regaining financial aid eligibility
If you lost your eligibility for student loans, contact your school’s financial aid office to create a plan to regain access to federal aid. In many cases, you become eligible again after taking some simple remedial steps.
For more information on understanding your loan options, check out this article on federal versus private loans.
Need a student loan?Here are our top student loan lenders of 2019!
|2 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.
(1)All rates shown include the auto-pay 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.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7% variable Annual Percentage Rate (“APR”): 96 monthly payments of $179.28 while in the repayment period, for a total amount of payments of $17,211.20. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 5/29/2019. Variable interest rates may increase after consummation.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
4 Important Disclosures for Discover.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
* Offer valid for new Custom Choice Loans for which applications are submitted for a credit decision between 12:00:00am EST on June 1, 2019 and 11:59:59pm EST on August 31, 2019. A 0.50% interest rate reduction will be included in the loan options presented to an applicant during the online application process, upon passing the initial credit review. The interest rate reduction will be applied as of the first disbursement date and will be effective for the life of the loan.
6 Important Disclosures for LendKey.
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.99% – 11.98%2||Undergraduate, Graduate, and Parents|
|4.50% – 11.35%*,3||Undergraduate and Graduate|
|4.84% – 11.99%4||Undergraduate and Graduate|
|3.27% – 10.80%5||Undergraduate and Graduate|
|4.46% – 9.43%6||Undergraduate and Graduate|
|3.74% – 9.72%7||Undergraduate, Graduate, and Parents|
|3.99% – 11.64%8||Undergraduate, Graduate, and Parents|