Let's Talk Federal Student Loans

By Francine Fluetsch on July 14, 2015

When thinking about how you are going to afford college, you may end up considering federal student loans. These are distributed by the Department of Education and are intended to help students afford college in a way that won’t completely sink them into a hole (well, that’s the idea anyway).

image via kristiculpepper.tumblr.com

Most of these are low cost and have fixed rates to help you and your parents get you the education that you deserve. A few of the federal loans you can pick from are as follows.

Direct subsidized loans

These loans are made for undergraduate students. The great thing about them is that no interest will be charged while you are studying, as long as you are at least a part-time student. This offers more motivation for packing in a few extra classes, because avoiding interest for a little while will really help you out in the long run.

Interest will also be kept at bay if you decide to defer from the payments for a bit, for whatever reason you might have, which is actually really nice of them so take advantage of that if need be.

Direct unsubsidized loans

This loan goes for undergrads, grads, and students going for their doctorate, but the problem with this one is that interest is charged while going to school. So this one is going to make you pay more in a shorter amount of time, so take that into consideration before accepting it.

Direct PLUS loans for parents

This loan is for parents who have a dependent undergraduate that they are putting through school. This loan also charges interest through all periods, but the parent is the primary borrower, so the student will not come out of college with debt in their name. If you think your parent would be up for something like this, it could definitely be something to consider.

Direct PLUS loans for graduates

This loan goes for graduates as well as students getting their professional degree, and will be charging interest the whole way through.

Direct consolidation loans

Direct consolidation loans let the borrower combine two or more federal loans into one and create a single monthly loan payment after graduation. The interest rate of the consolidation loan is based on a weighted average of the loans you are combining, and is rounded up to the nearest 1/8 of a percent. This system is intended to preserve the original cost of the loans, and there are no fees on a federal consolidation loan.

According to this article, the loans are made by the U.S. Department of Education’s William D. Ford Federal Direct Loan program, also known as the Direct Loan program. They used to be issued by the Federal Family Education Loan (FFEL) program, so if you see that name listed, just know it’s the same thing pretty much.

So how exactly do you go about getting one of these federal loans?

Well, I’m sure most of you have heard of the Free Application for Federal Student Aid, or (FAFSA), which is the first step towards getting your financial aid. I remember back in high school, our teacher took us to the computer lab, and had each of us register for the FAFSA, even if we didn’t think we’d get any aid. It’s always better to try and see. Once you sign up for the FAFSA, you must enroll in a college/university, and be enrolled at least part time to be eligible for federal aid.

You will also be required to complete loan counseling to help you understand the complicated process and to know exactly what you are getting into and how you are going to pay it off. On top of that, you will also have to sign a Master Promissory Note before you will be able to get your money.

This is basically a legal document between you and the lender, spelling out the specifics of your loan(s), like the amount borrowed and the interest rate that will be applied. You only have to sign this once for federal loans as long as you are using them at the same college or university.

Deferring from payment

If you really need to, you have the option of deferring your loan payment, which means that for an allotted amount of time, you will not be required to make monthly payments, but the danger with this is that in many loan cases, the interest will continue to increase, and will be added to what you owe. If you are lucky enough to score a subsidized loan, you won’t have to worry about the interest increasing because the government will pay it for you while you are deferring, but for all other loans you will be responsible for paying the added amount while they halt their payments for a short while.

Remember to weigh all your options before accepting a certain loan, and make sure you know what type it is and what the payment responsibilities will be. Knowledge with this is power, and you don’t want to end up blindsided by your loan and trapped in a hole you didn’t want to be in. Hope this helps!

Hat tip to this article on Edvisors and this one on Navient.

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