Once a student has exhausted all funding options that do not require repayment, there may still be some outstanding expenses. This is often the case. The next step involves a search for loans. The following federal student loan types are most common:
Direct Subsidized Loans: These are loans made available to undergraduate students who demonstrate a financial need, to assist in covering the costs of higher education at a college, university, or career school. Interest on these loans is assumed by the government while the student is enrolled in school. Interest only begins to accrue after graduation. This is the case unless the student leaves school or falls below a half-time basis. In these cases, interest begins to accrue after six months.
Direct Unsubsidized Loans: These loans are similar in most respects to the subsidized loans. There are certain distinctions, however, between the two. Unsubsidized loans are made available to undergraduate, graduate, and professional students. Also, the student is not required to demonstrate a financial need to be eligible for an unsubsidized loan. The major distinction to keep in mind is that interest begins to accrue immediately on the unsubsidized loan. In most cases, the subsidized should be utilized to its maximum potential before borrowing unsubsidized funds.
Direct PLUS Loans: These are loans made to graduate and professional students, or to parents of dependent undergraduate students. PLUS loans are designed to help pay for education expenses that are not covered by other sources of financial aid. The maximum loan amount is calculated by subtracting all other financial aid recieved from the student's cost of attendance, which is determined by the institution. Another feature worth noting; the borrower must not have an 'adverse credit history.'
Direct Consolidation Loans: These loans allow the student to combine all eligible federal student loans into a single loan with a single loan service. There is no application fee to consolidate your federal education loans into one Direct Consolidation Loan. If you are contacted with an offer to consolidate your loans for a fee, that particular servicer is NOT associated with with the U.S. Department of Education.
Comparing Federal and Private Loans
The student is not required to begin repayment of federal student loans until after graduation, leaving school, or changing enrollment status to less than half-time.
- Many private student loans require payments while the student is still enrolled in school.
- The interest rates on federal loans are fixed and, often, lower than those on private loans.
- Private student loans often charge variable interest rates. Some rates may exceed 18%. This type of rate would substantially increase the total repayment amount.
- Undergraduate students with financial need are typically able to qualify for a subsidized loan. This means that interest is paid by the government; provided the student is enrolled and attending on, at least, a half-time basis.
- Private student loans are not subsidized. This means that the student assumes all accrued interest.
- Aside from PLUS Loans, a credit check is not required for federal student loan eligibility. Federal student loans can be a means of establishing a positive credit record.
- Private student loans may require an established credit history. The interest on private student loans is determined by credit score as well as other factors.
- In most cases, federal loans do not require a cosigner.
- Interest on federal student loans may also be tax deductible. This is not generally the case with private loans.
- Federal loans can be consolidated into a Direct Consolidation Loan. Private loans cannot.
- Private student loans may not offer forbearance or deferment options. This means that repayment is expected regardless of hardship or inability to pay.
- There is no prepayment penalty fee associated with federal loans.
Federal Loan Forgiveness
Below, you will find some common circumstances that lead to loan discharge or forgiveness:
Total and Permanent Disability: If a student is totally and permanently disabled, he/she may qualify for a total and permanent disability (TPD) discharge of federal student loans or TEACH Grant service obligations. The Nelnet Total and Permanent Disability Servicer assists the U.S. Department of Education in administering the TPD discharge process.
Death: Federal student loans will be discharged due to the death of the borrower or of the student on whose behalf a PLUS loan was taken. The loan will be discharged if a family member or other representative provides the loan servicer acceptable documentation of the borrower's or parent's death. Acceptable documentation includes an original death certificate, a certified copy of the death certificate, or an accurate and complete photocopy of one of those documents.
Public Service Loan Forgiveness (PSLF): The PSLF Program forgives the remaining balance on Direct Loans after the student has made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. If the student wishes to qualify for Public Service Loan Forgiveness now or in the future, he/she should complete and submit the Employment Certification Form as soon as possible.
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