:: What Are My Loan Options? ::
After you've used your grants, scholarships and personal savings to pay for college, you may need additional funds to cover your school expenses. If that’s the case, federal loans are available to help.
A student loan is a serious obligation. It must be repaid whether you earn your degree or withdraw before graduation. If your loan isn't repaid, you could damage your credit score and face wage garnishment.
Private vs. Federal Loans
Exhaust all federal loan options before considering private (sometimes called alternative loans) which can have higher interest rates and fewer flexible repayment options. Federal loans offer options like deferments and forbearance if you can't make payments. You must complete the FAFSA to be eligible for federal loans. They are a much more cost-effective ways to fund your education than other high-interest options, like credit cards.
Types of Federal Loans
Direct subsidized loans are available to students who are determined to have financial need. The amount that can be borrowed is based on the school’s cost of attendance minus other financial aid the student may receive, minus the student’s aid index, which is determined by their Free Application for Federal Student Aid (FAFSA). The loan amount can't exceed the maximum loan amount allowed for the student's grade level. Interest is paid by the federal government while the student is attending school or during specified periods of deferment. For loans made on/between July 1, 2012, and June 30, 2014, there is no subsidy during the grace period. If you’d like more information about how FAFSA determines the Student Aid Index, check out this resource from UCanGo2.
Direct Unsubsidized loans are available to students regardless of financial need. The amount that can be borrowed is based on the school’s cost of attendance minus other financial aid the student may receive. The loan amount can't exceed the maximum loan amount allowed for the student's grade level. Borrowers are responsible for all interest accrued from the date the loan is disbursed, while the student is attending school or during periods of deferment or forbearance.
Direct PLUS loans are loans made to parents of undergraduate dependent students and to graduate or professional students. Federal PLUS loans are not based on financial need but are based on the borrower's credit. The loan amount can't exceed the school’s cost of attendance minus any other financial aid the student may receive. Borrowers are responsible for all interest accrued from the moment of disbursement.
*Important to note: Parents who take out a PLUS loan for their students’ education cannot transfer this loan to their student once they leave school.
If you have loans issued before July 1, 2010, you may have Federal Family Education Loan Program (FFELP) loans. All federal loans made after that date are part of the Federal Direct Loan (DL) Program.
Loan Limits and Interest Rates
The amount you can borrow depends on several factors, including your level of financial need, other sources of aid, cost of attendance and the length of your school's academic year. More specific information can be found at the Federal Student Aid website.
Interest rates for loans first disbursed on or after 7/1/23 and before 7/1/24 are:
Direct Loans
Subsidized and Unsubsidized Undergraduate Students – 5.50%
Unsubsidized Graduate or Professional Students – 7.05%
Direct PLUS loans – 8.05%
The Application Process
To receive federal loans, you must complete the Free Application for Federal Student Aid (FAFSA). Once you submit your FAFSA, you'll receive a Student Aid Report (SAR). If you have an email address on file, the Department of Education will send an email within three to five business days with instructions for viewing your SAR online. The schools you listed on your FAFSA will also receive a copy of your SAR. They'll review your information and determine how much financial aid you're eligible to receive.
At this time, you'll receive a Master Promissory Note (MPN), which is a legal agreement of repayment that can be provided in either an electronic or paper format. You may be eligible to receive multiple loans under one MPN for a maximum 10-year period. After your loan is approved, the loan funds are sent to your school.
