Federal educational loans are a form of need-based financial aid awarded to the student from federal government funds. Unlike educational grants and scholarships, educational loans must be repaid after a degree program has been completed or the student stops attending.
The current interest rate, payable during the repayment period, is five percent of the unpaid principal. Repayment begins nine months after graduation or leaving school and may extend over a 10-year period, and may be deferred for up to three years. Borrowers who work in certain fields such as early intervention, teachers at designated low-income schools, full-time nurses, and Peace Corps, VISTA, or other national volunteers may be eligible for cancellation of the loan. A professional internship deferral is limited to two years.
The student may borrow up to $3,500 as a freshman, $4,500 as a sophomore, and $5,500 in each of the remaining undergraduate years with total borrowing limited to $23,000. There are two types of Federal Direct Loans — subsidized and unsubsidized.
Federal Direct Subsidized Loans are subsidized, meaning that no interest must be paid on the loan while the student is in school, or during a 6-month grace period after the student leaves the school. Repayment begins after the student leaves school or drops below half-time enrollment in any semester. The interest rate is a variable rate, adjusted annually. Currently subsidized loans disbursed on or after 7/1/14 and before 7/1/15 the interest rate is 4.66%. The loan is subject to a 1.073% origination fee and insurance fee. These fees will be subtracted from the amount that is actually credited to the students college account; however, the student is responsible for repayment of the full amount borrowed.
Federal Direct Unsubsidized Loan terms and conditions are the same as the Subsidized Loan, except the student is responsible for interest payments while in school and during deferment periods. The accrued interest may be paid or capitalized, that is, the interest which should be paid can be added to the original amount of the loan.
For more information on Direct Loans, go to studentloans.gov.
The parents of students may annually borrow the total cost of education less any financial aid that the student is receiving. In order to receive this aid, the parent can apply on line at www.studentloans.gov. Parents may be denied access to a PLUS due to adverse credit histories.
For more information on Federal Direct Parent Plus Loans, go to studentloans.gov.