With more than 10 years of experience making loans and other complex money matters more accessible to the everyday person, Jennifer has helped readers build manageable and healthy money habits. Her work has been featured on numerous national financia.
Jennifer Calonia Loans ExpertWith more than 10 years of experience making loans and other complex money matters more accessible to the everyday person, Jennifer has helped readers build manageable and healthy money habits. Her work has been featured on numerous national financia.
Written By Jennifer Calonia Loans ExpertWith more than 10 years of experience making loans and other complex money matters more accessible to the everyday person, Jennifer has helped readers build manageable and healthy money habits. Her work has been featured on numerous national financia.
Jennifer Calonia Loans ExpertWith more than 10 years of experience making loans and other complex money matters more accessible to the everyday person, Jennifer has helped readers build manageable and healthy money habits. Her work has been featured on numerous national financia.
Loans Expert Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
Caroline Basile Mortgages and Student Loans Deputy EditorCaroline Basile is Forbes Advisor’s student loans and mortgages deputy editor. With experience in both the mortgage industry and as a journalist, she was previously an editor with HousingWire, where she produced daily news and feature stories. She ho.
| Mortgages and Student Loans Deputy Editor
Updated: May 4, 2022, 7:25am
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Getty
The average cost of undergraduate tuition and fees at a public, four-year college is $9,400 per year, according to the National Center for Education Statistics (NCES). That can be a lot of debt to handle as a student.
But luckily, on average, undergraduate students receive $6,617 in federal student loan assistance. Federal loans offer aid to students who need help covering the cost of college. So, understanding how these loans work is essential—before you decide to take on that debt.
Federal student loans are intended to help you pay for your college education. The federal government provides student loans through the Department of Education’s William D. Ford Federal Direct Loan Program. This type of federal aid offers fixed interest rates and loans must be repaid once you leave school or drop below half-time enrollment.
There are four types of Direct loans available, including a loan option specifically for parents of dependent students. The federal loan program offers subsidized and unsubsidized loan options, as well, depending on your enrollment level.
If you’re eligible for federal student loans, your school will provide you with a financial aid award letter. It outlines which loans you qualify for, if any, and the amount you can receive for the academic year.
You’ll need to select which loans you want to accept and the amount. If this is your first time borrowing a federal loan, you’ll need to complete entrance counseling, which explains how loans work and how to pay them back. You’ll also sign a master promissory note agreeing to the terms of your loan.
The school will then apply the federal loan funds toward your outstanding account charges, like tuition and fees. Whatever amount is left will be returned to you.
Once your enrollment drops below half-time or you graduate, a six-month grace period begins where you don’t have to make payments. After the grace period is up, you’ll start making monthly payments based on the terms of your loan agreement.
There are four types of student loans offered under the Direct loan program.
Direct subsidized loans are one of two Direct loans that are available to undergraduate students. A key benefit of subsidized loans is that they don’t require a credit check and the federal government pays for some interest that accrues on the loan. You must show financial need to qualify for this type of loan.
Typically, interest charges for this loan are subsidized when you’re enrolled at least half-time, during the first six months after leaving school (grace period) and when the loan is deferred.
Unsubsidized loans are also within the Direct Loan program—so a credit check isn’t required with these loans either. Unsubsidized loans are available to undergraduate, graduate and professional students. Financial need isn’t required to be eligible.
The caveat, however, is that you’re responsible for repaying all interest that accrues on the loan as soon as the funds are disbursed. However, if you’re enrolled in school or your loan is in deferment or forbearance, you can choose to defer interest payments.
Deferring the interest will result in capitalized interest: The interest will be added to your loan balance, and you’ll ultimately be charged additional interest on the higher balance when you start making payments.
Graduate and professional students, as well as parents of dependent undergraduate students, are eligible for federal Direct PLUS loans.
Applying for a PLUS loan involves a separate application since it requires a credit check. There’s no minimum credit score to be eligible for a Direct PLUS loan, but the primary borrower must not have adverse credit—like poor repayment history. If you have adverse credit, you might still be able to be awarded a PLUS loan, but you’ll need to satisfy other requirements.
A Direct consolidation loan lets you simplify your loan repayment by combining two or more federal student loans into one. Direct consolidation offers a fixed interest rate based on the weighted average of the interest on your original loans.
A federal consolidation loan can also help borrowers access certain repayment options, like income-driven repayment (IDR) plans or Public Service Loan Forgiveness (PSLF).
Direct subsidized loan Undergrad students enrolled at least half-time who demonstrate financial need Direct unsubsidized loanUndergrad students: 4.99%
Grad or professional students: 6.54%
To apply for federal student loans, you’ll need to submit a Free Application for Federal Student Aid (FAFSA) each academic year. The FAFSA is used by your school to determine if you qualify for federal loans and how much you can borrow. Here’s what you need to do:
If you’re a first-time college student or have not submitted a FAFSA in the past, you’ll need to create a Federal Student Aid (FSA) ID. This ID helps you sign your FAFSA and loan contracts, and manage your federal loan account on StudentAid.gov. Parents of dependent students will also need to create their own FSA ID.
The FAFSA can be completed online at fafsa.gov or using the form on the myStudentAid app. If you prefer a paper application, you can download and print a FAFSA and mail it in.
To prepare, gather your financial documents: tax return, bank statements, investment statements and other income and asset records. If you’re a dependent student, you’ll need to use the information from your parent(s).
The Department of Education begins accepting FAFSA applications for the upcoming academic year starting on October 1 and the FAFSA deadline is June 30 each year. But keep in mind, aid is awarded on a first-come, first-served basis—so the earlier you get your application in, the better.
Tip: States and schools often have their own FAFSA deadlines, so it’s best to submit as early as possible.
Federal student loans come with many benefits, including:
IDR plans can be requested by eligible borrowers who need a lower monthly payment, and IDR payments are generally restricted to 10% to 20% of your discretionary income. Those with very low income might be eligible for $0 monthly payments.
Private student loans, on the other hand, don’t adhere to the same rules as federal loans. Here are some ways private loans differ:
Although private student loans are sometimes necessary, you should explore other options for aid first. Take advantage of any scholarships and grants—since these don’t need to be repaid. Then, if you need student loans, prioritize federal government student loans before exploring private loan options.
Find the best Student Loan Refinance Lenders for your needs.
Was this article helpful?
Share your feedback Send feedback to the editorial team Thank You for your feedback! Something went wrong. Please try again later. Find The Best Student Loan
By Caroline Basile
By Caroline Basile
By Caroline Basile
By Taylor Medine
By Natalie Campisi
By Natalie Campisi
Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Loans ExpertWith more than 10 years of experience making loans and other complex money matters more accessible to the everyday person, Jennifer has helped readers build manageable and healthy money habits. Her work has been featured on numerous national financial publications like Credit Karma, Newsweek and LendingTree.
© 2024 Forbes Media LLC. All Rights Reserved.
Are you sure you want to rest your choices?The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. This compensation comes from two main sources. First, we provide paid placements to advertisers to present their offers. The compensation we receive for those placements affects how and where advertisers’ offers appear on the site. This site does not include all companies or products available within the market. Second, we also include links to advertisers’ offers in some of our articles; these “affiliate links” may generate income for our site when you click on them. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Forbes Advisor. While we work hard to provide accurate and up to date information that we think you will find relevant, Forbes Advisor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof. Here is a list of our partners who offer products that we have affiliate links for.
