How to Get a Student Loan to Pay for College (Part 1)
Money Girl explains the variety of student financial aid (including loans) available for students and parents to pay for college.
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1. Direct Loans come directly from the federal government in a few different products: Direct Subsidized, Direct Unsubsidized, and PLUS.
- Direct Subsidized Loans are for students with financial need. They don't require you to pay interest while you're still in school at least half-time.
- Direct Unsubsidized Loans are for students and are not based on need. They require you to pay all accrued interest on the loan.
- PLUS Loans are available to parents of dependent students, graduate students, and professional-degree students. They are always unsubsidized and require a satisfactory credit check for approval.
2. Perkins Loans are federal funds given to eligible schools to make subsidized, low-interest loans to undergraduate and graduate students. These campus-based loans are reserved for students with the most financial need.
You can learn more about federal loans at the government’s student aid site, studentaid.ed.gov.
What Are the Pros and Cons of Taking a Federal Student Loan?
Some of the advantages of federal student loans include:
- low interest rates that are fixed and can never go up
- flexible repayment options when you have a financial hardship
- a grace period for repayment so you don't have to make payments until after graduation
- cancelation if you die, become disabled, or make payments for 25 years
- cancelation for doing certain types of public service work after 10 years
- tax-deductible interest up to a certain amount, depending on your income
- subsidized interest, which means interest doesn't begin to accrue until after graduation, if you demonstrate financial need
There are also disadvantages of federal student loans that every borrower should know:
- maximum loan amounts may not cover all your education costs (see below)
- defaulting or not paying can result in being sued, having wages garnished, not receiving tax refunds or other government assistance
- defaulting could result in being denied a professional license
- defaulting damages your credit, eliminates eligibility to defer payments, and causes you to be denied for future student aid
- you generally can't wipe out or discharge a federal loan even by declaring bankruptcy
For more information and to learn what actions to take if you default on your loans, see the Department's Debt Resolution website.
What Is the Maximum Federal Student Loan Amount?
The maximum federal student loan amount you can receive increases each year that you’re in school. Additionally, the maximum depends on whether your loan is subsidized or unsubsidized and your dependency status.
For instance, an eligible undergraduate, who’s a dependent freshman, could get a subsidized Direct Stafford Loan for up to $3,500, or unsubsidized up to $5,500. If you were an independent student, you could borrow up to $9,500 for an unsubsidized loan.
How to Apply for Federal Student Financial Aid
To apply for any type of federal student aid—including grants, work-study programs, and loans—you must complete the Free Application for Federal Student Aid (FAFSA). If you fill it out online at fafsa.ed.gov, it’s sent automatically to schools you list on the application.
Then you’ll receive notification from those schools about the types of aid and amounts you may be eligible for. You can decline any loan offer or request a smaller loan amount.
Now that you understand the basics of grants, work-study programs, and loans funded by the federal government, join me for part 2 of this series for much more information. I’ll tell you about tips to manage student loans, plus other types of non-federal financial aid that can make your college dreams come true.
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