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Federal Student Loans Guide

There are a few different types of federal student loans that can be used to pay for your education. Student loan borrowers should consider federal loans before other loans.

Note about changes due to COVID-19:

  • Federal Student Loan Borrowing Limits
  • Qualifying for Federal Student Loans
  • Deciding How Much to Borrow
  • How to Get Federal Student Loans
  • Federal Student Loan Servicers
  • Benefits of Federal Student Loans
  • Alternatives to Consider

Types of Federal Student Loans

All new federal student loans are made through the William D. Ford Federal Direct Loan Program. Students and parents who qualify can borrow directly from the Department of Education and their proceeds can be used at any qualifying school.

Direct Subsidized Loans

  • Eligible Students: Undergraduate Students with Financial Need
  • Interest Rate for ’19/’20 School Year: 4.53%
  • Origination Fee: 1.059%
  • Grace Period: 6 months

Direct Unsubsidized Loans

  • Eligible Students: Undergraduate, Graduate, and Professional Students
  • Interest Rate for ’19/’20 School Year: 4.53% (undergrad), 6.08% (graduate & professional degrees)
  • Origination Fee: 1.059%
  • Grace Period: 6 months

Parent PLUS Loans

  • Eligible Students: Parents of Dependent Undergraduate Students with No Adverse Credit History
  • Interest Rate for ’19/’20 School Year: 7.08%
  • Origination Fee: 4.236%
  • Grace Period: No Grace Period Typically but Parents May Request Deferment for 6 Months After Child Leaves School

Grad PLUS Loans

  • Eligible Students: Graduate and Professional Students with No Adverse Credit History
  • Interest Rate for ’19/’20 School Year: 7.08%
  • Origination Fee: 4.236%
  • Grace Period: 6 Months After Leaving School

Consolidation Loans

  • Eligible Students: Most Borrowers with Federal Student Loans
  • Interest Rate for ’19/’20 School Year: Weighted average of federal loans being consolidated rounded up to the nearest eighth of a percentage
  • Fee: None
  • Grace Period: 60 Days After the Loan is Disbursed (If any of the loans are in their grace period, you may request to delay repayment until it is up)

Federal Perkins Loan Program

The other broad category of federal student loans used to be Perkins Loans, which were low-interest federal student loans available to both undergraduate and graduate students who had exceptional financial need. These loans stopped being offered on September 30, 2017.

Federal Student Loan Borrowing Limits

Each type of federal student loan has imposed limits based on the year of attendance, the status of the student (dependent or independent), and other financial aid received for education. Here’s a quick overview:

  • ​Second-Year Undergraduate Students — Dependent students can borrow $6,500, with no more than $4,500 in subsidized loans; independent students can borrow $10,500, with no more than $4,500 in subsidized loans.
  • ​Third-Year and Beyond Undergraduate Students — Dependent students can borrow $7,500, with no more than $5,500 in subsidized loans; independent students can borrow $12,500, with no more than $5,500 in subsidized loans.
  • Graduate and Professional Students — $20,500 of unsubsidized only

Qualifying for Federal Student Loans

To qualify for federal student loans, there are fundamental eligibility requirements that must be met, including:

  • ​Have a valid Social Security number
  • ​Be enrolled or accepted for enrollment as a student with an eligible degree or certificate program, at least half-time
  • ​Maintain academic progress in college
  • ​Show you are qualified to obtain a college degree or career school education
  • Are not in default on existing federal student loans

Deciding How Much to Borrow

While it is always possible to borrow the full amount of available federal student loans each year, it isn’t recommended if you can pay for college with other things like scholarships, grants, or savings.

Figure Out the Net Cost of College

Start by calculating the cost of attendance at the school of your choice.

Consider How You Will Repay Your Loans

Although these calculations are helpful, it is also necessary to recognize your financial obligation on the other side of the line.

How to Take Out Federal Student Loans

Getting federal student loans is a relatively simple process, but it begins with understanding the eligibility requirements listed above. Additionally, you need to know whether or not your school is eligible to receive federal student loans from students.

1) Figure Out if Your College(s) of Choice Are Eligible for Federal Aid

An eligible school can be an institution of higher education or a postsecondary vocational institution that meets specific requirements.

2) Fill Out the FAFSA

Once you have determined you are enrolled or plan to enroll in an eligible school, you need to complete the Free Application for Federal Student Aid, or the FAFSA. The FAFSA is most easily filled out online, and it requires you to create an FSA ID if you do not already have one.

3) Review Your Award Letter

Upon submitting the FAFSA, the information in the application is sent to the school(s) of choice and its financial aid office determines the amount of federal student aid you may receive.

Benefits of Federal Student Loans

Most students who need to borrow for their education turn to federal student loans first, not only because of the ease of applying, but also due to the inherent benefits federal student loans have.

Relatively Low Interest Rates

Additionally, federal student loans are low-interest student loans and often have lower rates than even the best private student loans, making the cost of borrowing for your education less expensive.

Deferment and Forbearance Protections

Federal student loans also come with deferment and forbearance options, designed to help borrowers who are facing financial hardship or trouble paying their loans back each month.

A Variety of Repayment Options

In addition to these inherent advantages of federal student loans, borrowers also have the ability to select from a number of repayment plans other than the standard 10-year plan.

Good Credit Not Require & Can Help You Build Credit

Finally, federal student loans don’t require a good credit score and — because of this — are a great option for those with bad credit.

Federal Student Loan Servicers

Although the Department of Education funds federal student loans, it does not act as a direct servicer once loans are dispersed or begin repayment.

Nelnet

Nelnet is a federal student loan servicer in Lincoln, Nebraska. After acquiring Great Lakes Educational Loan Services, Inc., in 2017, it’s the largest federal student loan servicer.

Great Lakes Educational Loan Services, Inc.

Great Lakes Educational Loan Services, Inc., is located in Madison, Wisconsin. Borrowers with Great Lakes as a servicer can reach the company online or at 1–800–236–4300.

Navient

Navient is one of the larger federal student loan servicers, headquartered in Wilkes-Barre, Pennsylvania.

FedLoan Servicing (PHEAA)

FedLoan Servicing, also known as PHEAA, is a federal student loan servicer located in Harrisburg, Pennsylvania.

MOHELA

MOHELA is a federal student loan servicer located in Chesterfield, Missouri. Borrowers can connect with the company through its website or by calling 1–888–866–4352. There have been no significant complaints or lawsuits against MOHELA in recent years.

HESC/EdFinancial

HESC EdFinancial, also referred to as EdFinancial Student Loans, is headquartered in Knoxville, Tennessee. The company can be contacted either online or by calling 1–800–337–6884. There are no significant complaints or lawsuits against EdFinancial as of May 2018.

CornerStone

CornerStone is another federal student loan servicing company, located in Salt Lake City, Utah. Borrowers may get in touch with the servicer online or by calling 1–800–663–1662. There are no significant complaints against CornerStone as of May 2018.

Granite State — GSM&R

Granite State, also known as GSM&R, is a federal student loan servicer operating in Concord, New Hampshire. Borrowers with Granite State as their servicer can contact the company by visiting its website or calling 1–888–556–0022. No major complaints or lawsuits have been filed recently against Granite State as of May 2018.

OSLA Servicing

OSLA Servicing is another federal student loan servicer that operates out of Oklahoma City. Borrowers can connect with OSLA by visiting its website or calling 1–405–556–9224. There is no significant issue or complaint against OSLA as of May 2018.

Federal Student Loan Alternatives

Student loans offered by the Department of Education are often the go-to for borrowers for the reasons listed above, but there are some alternatives to consider.

Scholarships

Receiving a scholarship for your education can make all the difference in how much you pay out of pocket or borrow to earn a degree.

Grants

Grants are another method of paying for your college degree through funds that do not need to be repaid.

Work-Study

Funding from work-study programs is also available to some students. Work-study programs provide part-time employment for both undergraduate- and graduate-level students who can show a financial need.

Private Student Loans

When federal student loan funding has been exhausted, students should next turn to private student loans. Unlike federal student loans, private student loans are offered by private lenders and the maximum amounts, interest rates, and repayment plans available vary from company to company.

With the help of LendEDU’s blog, tools, and resources, our goal is to assist you in making educated financial decisions. LendEDU: Educated Financial Decisions.