Student Loans

Student loans are loans for undergraduate and graduate students to use to pay for their college expenses. Student loan funds are often disbursed directly to the school, but may also be disbursed to the student.

The amount remaining after a school disbursement is sent to the student to use on other educational expenses such as supplies.

There are a variety of loans available both to students and to their parent. To qualify, each must meet specific criteria which include academic progress, financial need and enrollment status. Loans must be repaid after a grace period. Students who are unable to make payments may request a student loan deferment. In some cases, borrowers qualify to have their loan forgiven or canceled. For more information on the different types of federal student loans and how to qualify, read the sections below.

What are student loans and how do they work?

Student loans are given to applicant students to cover their college expenses. They may use the student loans to pay for tuition, room and board, books and supplies. The funds may be offered through private lenders or they may be offered by the federal government. Students must qualify for the funding based on their income and their credit. In some cases, parents may take out loans to fund their dependent child’s college education. In these types of scenarios, the parent must qualify for the loan based on their credit and income. Once the lender approves the loan, the lender sends the funds directly to the school to credit to the student’s account. The remainder of the loan is sent to the student.

Related Article: Federal Student Grants

Students must repay their loans. When repayment begins depends on the type of loan. Federal student loans do not require students to make payments while in school. However, private lenders require students or parents to begin repayment as soon as the loan is disbursed. The amount of the payment depends on the amount of the loan, Federal student loan interest rates and the length of the repayment term.

How to Qualify for Student Loans

Students must qualify for federal student loans and must meet the guidelines outlined by the U.S. Department of Education to remain eligible for further funding. Regardless of the type of student loan, all students must meet a general set of eligibility requirements for a loan. The general loan qualification criteria are:

  • The student must be a citizen or eligible noncitizen.
  • Applicant must have a valid Social Security number.
  • Make satisfactory academic progress towards their degree or certificate.
  • Be registered for the selective service if a male.
  • Not be in default on any federal loans.

Many federal student loans are income-based. The income-based Direct Subsidized loans target students who demonstrate an exceptional need for aid. Parents qualify for funding for their student if the student meets the general eligibility criteria outlined above. In addition to those, they must not be in default on any federal student loan. They must also demonstrate creditworthiness to repay the loan.

Applying for FAFSA Loans

Anyone seeking a federal student loan must apply using the Free Application for Federal Student Aid (FAFSA). The FAFSA is a standard U.S. Department of Education student loan application that collects information about the borrower, including the following:

  • Full name.
  • Social Security number.
  • Citizenship status.
  • Income.
  • Parents information (name and income).

The student must also specify a list of schools whom they wish to send a copy of their FAFSA. Schools use the information on the FAFSA to determine the student’s financial need. The financial need represents the amount the student requires to cover their education expenses after subtracting other loans, grants, scholarships or other payments the student is expected to receive.

The U.S. Department of Education also uses the information on the FAFSA to determine the amount to lend the applicant. The applicant may elect to receive the full amount offered, however, it is not required that they do so. Students may choose only to receive a portion of the amount offered for their FAFSA student loans and instead seek other affordable options to cover the remainder of their expenses.

What is the difference between a Direct Subsidized Loan and a Direct Unsubsidized Loan?

Both the Direct Subsidized Loan and the Direct Unsubsidized Loan are federal government issued loans. The differences between these student loans for college are based mainly on repayment terms, income and school status. The Direct Subsidized Loan is a type of loan which the government pays the interest on the loan during the student’s grace period. The grace period includes the time the student is in school, up to six months after they leave school or during a deferment. It is a needs-based loan and thus only those with the most financial need qualify. Lastly, they are only available to undergraduate students.

On the other hand, the Direct Unsubsidized Loan is not a needs-based program. Any student may qualify provided they meet the criteria outlined by the loan terms. The government does not subsidize or pay any portion of the interest on the loan, and interest rates are higher than for subsidized loans. Students must pay for the interest charged on an Unsubsidized Loan during all periods. Should a borrower elect not to pay interest while in school, the interest accrues and gets applied to the principal amount of the loan. The loan is available to both undergraduate and graduate students.

Grad PLUS Loans Explained

Graduate students may apply for a Grad PLUS Loan to help pay for education expenses not covered by other financial aid. The Grad PLUS Loan is only available to eligible graduate or professional students.

The loan does not evaluate an applicant’s need for the loan. However, the borrower must demonstrate creditworthiness to repay the loan. As such, applicants must agree to a credit check as a part of the application process. Those with an adverse credit history may qualify for this type of student loan. However, they may be required to provide additional information to get approved.

To get a Grad PLUS Loan, borrowers must also sign a Master Promissory Note (MPN). The MPN outlines the terms of the loan such as repayment, interest rate and rules regarding defaults. Applicants are required to sign the MPN as a condition of disbursing the loan. Additionally, applicants must complete entrance counseling before the government pays the loan. Entrance counseling ensures the student understands the terms of the student loan before signing the agreement.

What is the Parent PLUS Loan?

Parents of dependent undergraduate students may qualify for a specific type of loan known as the Parent PLUS Loan. They may use the student loan to pay for their student’s education after exhausting all other means of aid. The student must be a dependent and enrolled at least half-time in an undergraduate program.

The student must meet the general eligibility criteria for a federal student loan. The parent must not have adverse credit to qualify for the loan. Those requesting a Parent PLUS Loan must complete a FAFSA form.

Related Article: Private Student Loans

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