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Understanding Student Loans

Understand which student loans you qualify for, who will give them to you, and how to get them. All it takes is a little research.

Below you’ll find a guide to the different kinds of student loans and their interest rates, plus key industry players, special benefits for borrowers in the military, loans specifically for medicine or law students, and useful information for people planning to study abroad.

 

Subsidized Stafford Loans

The federal government will pay the interest on your Subsidized Stafford Loans under certain circumstances.

Who Can Borrow

Students who demonstrate financial need and are:

  • U.S. citizens or eligible non-citizens.
  • Enrolled at least half time in an eligible degree or certificate program.

Loan Limits

Undergraduate independent and dependent students can borrow a maximum of $23,000. This includes:

  • Up to $3,500 in their first year.
  • Up to $4,500 in their second year.
  • Up to $5,500 in their third year and beyond.

As of July 1, 2012, graduate students can no longer receive Federal Subsidized Stafford Loans. They are still eligible for Federal Unsubsidized Stafford Loans.

Repayment Terms

  • Repayment begins 6 months after the borrower initially graduates, withdraws, or drops below half-time enrollment.
  • Under certain conditions, the borrower can request a deferment—a repayment postponement—during which the federal government will pay your accruing interest on your behalf.
  • Borrowers also may be able to postpone repayment of their loan payments with forbearance. However, interest still accrues and will capitalize if you do not pay it during forbearance.
  • Typically, you have up to 10 years to complete repayment; however borrowers can also choose from various repayment plans.
  • There are no penalties for prepayment or finishing repayment ahead of schedule.

Interest Payment

Interest is generally paid by the federal government while you are:

  • In school.
  • In a grace period. However, subsidized student loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014 are NOT eligible for the interest subsidy during the grace period. This means that you will be responsible for the interest that accrues during this time. During the grace period, payments are optional, but any interest that builds up will be added to the principal amount of your loan (capitalized) when the grace period ends.
  • In an approved deferment period.

Interest Rate

The interest rate for subsidized Stafford loans is fixed. The rate for new loans is set each year on July 1.

  • Loans disbursed before July 1, 2008: 6.8%
  • Loans disbursed on or after July 1, 2008, and before July 1, 2009: 6%
  • Loans disbursed on or after July 1, 2009, and before July 1, 2010: 5.6%
  • Loans disbursed on or after July 1, 2010, and before July 1, 2011: 4.5%
  • Loans disbursed on or after July 1, 2011, and before July 1, 2013: 3.4%
  • Loans disbursed on or after July 1, 2013, and before July 1, 2014: 3.9%
  • Loans disbursed on or after July 1, 2014 and before July 1, 2015: 4.66%
  • Loans disbursed on or after July 1, 2015 and before July 1, 2016: 4.29%

Since July 1, 2012, Federal Subsidized Stafford Loans have been unavailable for graduate study. Earlier graduate student subsidized loans have a fixed interest rate of 6.8%.

If you have loans disbursed prior to July 1, 2006, contact your loan holder for interest rate information. Many loans made before this time have a variable interest rate that changes annually.

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Unsubsidized Stafford Loans

These loans are available without regard to need, but you must pay the interest on them the entire time.

Who Can Borrow

Students who are:

  • U.S. citizens or eligible non-citizens.
  • Enrolled at least half time in an eligible degree or certificate program.

Unsubsidized Stafford loans are not based on financial need.

Loan Limits

Dependent Undergraduate Students

Each year, dependent undergraduate students can borrow a base amount in either subsidized or unsubsidized Stafford loans. The loan type depends on the student’s need, which is calculated by the U.S. Department of Education.

The base amount can be:

  • Up to $3,500 in the borrower’s first year of school.
  • Up to $4,500 in the second year.
  • Up to $5,500 in the third year and beyond.

However, if the student’s aid has not exceeded the cost of attendance, the student can be eligible for up to an additional $2,000 per year in unsubsidized funds.

With an additional $2,000 unsubsidized loan per year, dependent undergraduate students can borrow up to a maximum of $31,000 in Stafford loans. Of that $31,000, no more than $23,000 may be in subsidized funds.

Undergraduate Independent Students and Dependent Students Whose Parents Are Unable to Obtain a PLUS Loan

Undergraduate independent students and dependent students whose parents are unable to obtain a PLUS loan can borrow a base amount of Stafford loans. These can be either subsidized or unsubsidized, depending on the student’s need.

The base amount can be:

  • Up to $3,500 in their first year of school.
  • Up to $4,500 in their second year.
  • Up to $5,500 in their third year and beyond.

Additionally, if the student’s aid has not exceeded the cost of attendance, the student can be eligible for unsubsidized funds of:

  • Up to an additional $6,000 in their first and second years.
  • Up to an additional $7,000 in their third year and beyond.

Undergraduate independent students and dependent students whose parents are denied PLUS loans can borrow up to a maximum of $57,500 in Stafford loans.

Graduate Students

  • As of July 1, 2012, all Stafford loans for graduate students are unsubsidized.
  • Students may borrow up to $20,500 per year.
  • Total Stafford loans, including undergraduate loans, may not exceed $138,500.
  • There are different aggregate borrowing limits for health profession students.

Repayment Terms

  • Repayment begins 6 months after the borrower graduates, withdraws, or drops below half-time enrollment.
  • Typically, the borrower has up to 10 years to complete repayment; however borrowers can choose from various repayment plans.
  • There are no penalties for prepayment or finishing repayment ahead of schedule.
  • Under certain conditions, repayment of a borrower’s loans can be postponed with a deferment or forbearance. Interest will continue to accrue during periods of deferment or forbearance.

Interest Rate

  • Loans disbursed on or after July 1, 2006 and before July 1, 2013: Fixed at 6.8% for undergraduate and graduate loans.
  • Loans disbursed on or after July 1, 2013 and before July 1, 2014: Fixed at 3.9% for undergraduate and 5.4% for graduate students
  • Loans disbursed on or after July 1, 2014 and before July 1, 2015 have an interest rate of 4.66% for undergraduate and 6.21% for graduate students
  • Loans disbursed on or after July 1, 2015 and before July 1, 2016 have an interest rate of 4.29% for undergraduate and 5.84% for graduate students.
  • Interest accrues upon disbursement of loan funds and can be paid monthly or quarterly during the in-school period.
  • The borrower can choose to allow interest to accrue while in school, but interest will be capitalized, which means it is added to the principal (the base amount borrowed).
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Perkins Loans

These loans are available to students with exceptional financial need.

Who Can Borrow

Undergraduate and graduate students with exceptional financial need. Only eligible students will be able to borrow these loans beginning with the 2017-2018 academic year.

All undergraduate borrowers can receive Perkins loans through September 2017, as well as any remaining disbursements for the 2017-2018 academic year. Undergraduate borrowers with Perkins loans may receive a new Perkins loan only after exhausting all of their subsidized Stafford loan eligibility. Undergraduates without existing Perkins loans can borrow these loans only after exhausting all of their subsidized and unsubsidized Stafford loan eligibility.

Note: The student may decline all or part of the Stafford loan awards and still receive the Perkins loan amount.

As of October 1, 2016, graduate student Perkins loans will be limited to current graduate Perkins loan borrowers continuing their current course of study at the school where they received a Perkins loan prior to October 1, 2015. These students may only receive the Perkins loan award if it will allow them to complete their program.

These graduate students may also be eligible for the Perkins loan if the most recent Perkins disbursement was for a lower degree level of the same academic program. For example, the student is now enrolled in a Ph.D. program after a master’s program.

Perkins loan borrowers who received disbursements for the 2016-2017 academic year prior to October 1, 2017 may receive the subsequent disbursements for the remaining academic year.

No new Perkins loans will be disbursed as of October 1, 2017.

Loan Limits

  • Undergraduates can borrow up to $5,500 a year, for a maximum of $27,500.
  • Graduate students can borrow up to $8,000 per year, for a maximum of $60,000.

Repayment Terms

  • Repayment begins 9 months after a borrower graduates, withdraws, or falls below half-time enrollment.
  • The borrower has up to 10 years to complete repayment.
  • Borrowers receive limited options for repayment schedules, but they do have additional postponement options like Perkins-specific deferments and forbearance.
  • Borrowers should contact their school or servicer to apply for a postponement.
  • Your servicer is usually different from your other federal loans. It could be your school or a company chosen by your school.

Interest

The interest rate is fixed at 5%. Interest is paid by the federal government while the borrower is:

  • In school.
  • In a grace period.
  • In an approved deferment period.
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Parent PLUS Loans

Parent PLUS loans are borrowed by a dependent student’s parents.

Who Can Borrow

Natural or adoptive parents or stepparents (including same-sex stepparents) and legal guardians of eligible dependent undergraduate students who are:

  • U.S. citizens or eligible non-citizens.
  • Enrolled at least half time in an eligible degree or certificate program.

Borrowers must have credit in good standing. An endorser may be required.

Parent PLUS loans are not based on financial need, but the FAFSA must be completed by the student to apply.

Loan Limits

Parents can borrow up to the total cost of attendance at the student’s school (as determined by the school), minus all other aid received.

These loans have no annual or total borrowing limit. It is important to note that no debt to income evaluation is completed as part of the PLUS loan application, so it is possible to be awarded more in loans than may be affordable for your family. Please borrow wisely.

Repayment Terms

Typically, borrowers have up to 10 years to complete repayment; however borrowers can choose from various repayment plans.

There are no penalties for prepayment or finishing repayment ahead of schedule.

Under certain conditions, borrowers can postpone repayment by requesting a deferment or forbearance. Interest will continue to accrue during periods of deferment or forbearance.

For loans disbursed before July 1, 2008:

  • Repayment begins on the loan’s principal and interest as soon as it is fully disbursed.

For loans disbursed on or after July 1, 2008, the borrower can choose to start repayment:

  • No later than 60 days after the loan is fully disbursed.
  • Upon request, 6 months after the student for whom the loan was borrowed graduates, withdraws, or drops below half-time enrollment.

Some Parent PLUS loans taken prior to July 1, 1993 may also be eligible for in-school deferment.

Interest Rate

Parent PLUS loan rates are fixed. The rate for new loans is set each year on July 1.

  • All Parent PLUS loans disbursed on or after July 1, 2010, and before July 1, 2013: 7.9%
  • Parent PLUS loans disbursed on or after July 1, 2013 and before July 1, 2014: 6.4%
  • Parent PLUS loans disbursed on or after July 1 2014 and before July 1, 2015: fixed at 7.21%
  •  Parent PLUS loans disbursed on or after July 1, 2015 and before July 1, 2016: fixed at 6.84%
  • PLUS loans originated under the Federal Family Education Loan Program (FFELP) had a fixed interest rate of 8.5%. As of July 1, 2010, there are no new FFELP loans.
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Grad PLUS Loans

Grad PLUS can help pay for the additional cost of graduate school.

Who Can Borrow

Credit-worthy graduate or professional students who are U.S. citizens or eligible non-citizens and enrolled at least half time in an eligible degree or certificate program. An endorser may be required.

Loan Limits

Borrowers can borrow up to the total cost of their education, minus all other aid received.

These loans have no annual or total borrowing limit.

Repayment Terms

For loans disbursed before July 1, 2008:

  • No payments are required while the borrower is in-school at least half time.
  • If the borrower graduates, withdraws, or drops below half-time enrollment, there is no grace period before repayment begins.

For loans disbursed on or after July 1, 2008:

  • Repayment starts 6 months after the student drops below half-time enrollment.

There are no penalties for prepayment or for finishing repayment ahead of schedule.

Under certain conditions, borrowers can postpone repayment by requesting a deferment or forbearance. Interest will continue to accrue during periods of deferment or forbearance.

Interest Rate

Grad PLUS loan rates are fixed. The rate for new loans is set each year on July 1.

  • All Grad PLUS loans disbursed on or after July 1, 2010, and before July 1, 2013: 7.9%.
  • Grad PLUS loans disbursed on or after July 1, 2013 and before July 1, 2014: 6.4%.
  • Grad PLUS loans disbursed on or after July 1 2014 and before July 1, 2015: fixed at 7.21%
  • Grad PLUS loans disbursed on or after July 1, 2015 and before July 1, 2016: fixed at 6.84%.
  • Grad loans originated under the Federal Family Education Loan Program (FFELP) had a fixed interest rate of 8.5%. As of July 1, 2010, there are no new FFELP loans.

 

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Federal Consolidation Loans

Consolidation loans combine multiple loans into a single loan.

Who Is Eligible

Borrowers with one or more eligible federal student loans.

Loan Limits

None.

Repayment Terms

  • Based on your total education loan debt (including most private education loans), you could extend your repayment to a maximum of 30 years.
  • Extending repayment will likely increase the amount of interest paid over the life of the loan.
  • Consolidated loans can be reconsolidated when there are additional eligible federal education loans, when you are consolidating to become eligible for Public Service Loan Forgiveness, or when you are consolidating out of default.
  • Under certain conditions, you can postpone repayment by requesting a deferment or forbearance. Interest will continue accruing on unsubsidized portions (but not subsidized portions) of a Consolidation loan during periods of deferment.
  • There are several repayment plans available.
  • There are no penalties for prepayment or finishing repayment ahead of schedule.

Interest Rate

Most federal consolidation loans have fixed interest rates.

The interest rate is calculated by taking the weighted average of the interest rates on the loans being consolidated and rounding up to the nearest 1/8 of a percent.

As an example, if you were in repayment on a loan of $5,000 at 6.8% and a loan of $10,000 at 6.0%, your rate would be 6.375%. Here is why:

  • The amount you owe on each loan is multiplied by its respective interest rate (5,000 x 0.068 = 340; 10,000 x 0.06 = 600).
  • These amounts are then added together (340 + 600 = 940).
  • This total is divided by the total amount you owe (940 / 15,000 = 0.063).
  • Multiplied by 100, this number creates your weighted average interest rate (100 x 0.063 = 6.3).
  • Your weighted average is then rounded up to the nearest 1/8 percent (6.3 + 0.075 = 6.375).

Keep in mind that rates are capped at 8.25%.

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Institutional, Private, and State loans

Outside the federal loan program, there are other student loan providers.

 Institutional Loans

  • These loans are similar to private loans, but they are non-federal aid provided directly by your school.
  • Your servicer may be your school or an agency hired by your school.
  • Repayment options will vary, as will interest rates.
  • If you have institutional loans, contact your school to learn more about the terms of these loans.

Private Loans

  • Also called “alternative loans.”
  • Unlike federal student loans, private loans are not funded or otherwise processed by the federal government.
  • Either the borrower or a parent can take out a private loan.
  • These loans have a variety of interest rates, payment structures, and lengths of time to repay. You will have to refer to your master promissory note or contact your servicer for specifics.
  • Private loans may not have many of the repayment, deferment, or forgiveness options that are available with federal loans.
  • Private loans may be an important option if the borrower does not qualify for other forms of aid.

State Loans

  • State loans are provided through state-funded programs and are not affiliated with federal loan programs.
  • These loans’ interest rates may vary depending on the state you are in.
  • State loans have different benefits and requirements from federal loans, but they may offer more benefits than private loans.
  • Contact your state’s office of education to learn more.
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Key Industry Players

There can be a lot of overlap among the people and organizations connected to your federal student loans. American Student Assistance® (ASA) can help you understand their differences.

Different Programs

Currently, there are 2 federal student loan programs—the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan (DL) Program.  All federal Stafford, PLUS, and Consolidation loans made on or after July 1, 2010, are handled by the Department of Education (ED) directly through the William D. Ford Direct Loan (DL) Program.

Prior to July 1, 2010, some loans were made through banks and other financial institutions under the Family Federal Education Loan Program (FFELP). The protections and rights available under both programs are very similar, but accessing them may be somewhat different. There are some benefits, like Public Service Loan Forgiveness and certain military benefits, that are available only to DL borrowers, although FFELP borrowers can consolidate into DL to access them.

Here is a quick look at the key industry players for both programs:

DL

In this program:

  • The school facilitates the loan origination and disbursement process.
  • The loan funds are delivered by ED.
  • ED employs a servicer to provide customer service to DL borrowers.

FFELP

School

  • The financial aid office of the school you attended.
  • They facilitate the financial aid application process every year.
  • They determine your financial aid eligibility using standard federal (and sometimes institutional) formulas.

Lender

  • The financial institution or entity that provided funds to you or your parent for an educational loan.

Guarantor

  • A nonprofit organization.
  • They work with the U.S. Department of Education, lenders, servicers, and schools to ensure student loan borrowers successfully repay their loans.
  • ASA® is a guarantor.

Servicer

  • An organization that collects loan payments and provides customer service on behalf of your lender.
  • Your servicer assists you with questions about your bill and repaying your loan.
  • You must contact them with changes to any of your personal details—such as your name, address, Social Security number, or enrollment status.

Secondary Market

  • Organizations that buy loans from the lenders.
  • They provide lenders with the capital they need to originate new loans.
  • Your lender may sell your loan to the secondary market.

Collection Agency

  • A company that specializes in the collection of delinquent or defaulted loans. Lenders often hire a collection agency to recover loans.

You can find out which program your loans came from by accessing the U.S. Department of Education’s National Student Loan Data System.

If you have questions about these organizations or encounter any difficulties repaying your loans, contact ASA. No matter which program originated your loan, we can help you.

Keep Track of Your Loans

The National Student Loan Data System (NSLDS) is the best way to keep tabs on all of your federal student loans.

NSLDSSM is a repository with details on all your federal student loans. To log on you will need some personal information along with your Federal Student Aid ID, the same login information you used to complete the FAFSA. If you don’t remember that, 

NSLDS shows all your current loan holders. Remember, if you want to do something like postpone your payments or apply for forgiveness, you must contact each of your loan holders.

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Special Benefits for Military Borrowers

If you are serving in the military, there may be student loan benefits available to you.

Servicemembers Civil Relief Act (SCRA) Interest Reduction

Borrowers on qualifying active duty will have their student loan interest rates reduced to 6% due the Servicemember Civil Relief Act (SCRA). This should be applied automatically for you. All federal student loan servicers and guarantors use the Defense Manpower Data Center (DMDC) to determine if you are eligible for the interest rate reduction. If the DMDC has inaccurate or incomplete information, please download and complete this form and submit it to your loan holder to request the interest rate reduction. This benefit is available even if the loan is past due or in default.

Military Service Deferment

Borrowers on qualified active duty, and even those who have demobilized, may be eligible for special postponement options.

  • Military personnel can postpone their loan payments for the entire time they are on qualified active duty by requesting a military service deferment.
  • They can also defer payments for 180 days—or possibly up to 13 months—after demobilization.
  • Get more information about these deferments here or download the Military Deferment Request (pdf, 0.45 MB) form.

Repayment Benefits

Borrowers on qualified active duty have access to certain repayment benefits—like interest rate caps and disability discharges.

  • Borrowers on qualifying active duty will have their student loan interest rates reduced to 6%. This can be requested from your loan holder if it hasn’t already been applied. This benefit is available even if the loan is past due or in default.
  • Direct Loan borrowers performing eligible military service qualify for a 0% interest rate. Borrowers with FFELP loans performing eligible service may consolidate them into Direct Loans to receive this benefit during the qualifying service period.
  • Service members declared totally and permanently disabled by the Department of Veterans Affairs may apply to discharge their federal loans at disabilitydischarge.com.

Educational Assistance Programs

Veterans thinking about furthering their education can take advantage of education assistance programs like the GI Bill.

  • The Department of Veterans Affairs administers the GI Bill, which benefits veterans, service members, and some dependents of disabled or deceased veterans pursuing an education.
  • You can also call 888.GI.Bill.1 (888.442.4551) to speak with a veterans benefit counselor.

Current servicemembers, veterans, and their families can review SALT’s Military Smartbook for Defeating Student Debt for a collection of educational assistance and loan repayment programs offered to military members and their families.

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Financial Aid Process With a Non-U.S. School

Even if you study at a non-U.S. school, you can still take advantage of federal student loans. Simplify your experience by applying early for financial aid. That way, you can ensure your aid is available before your tuition is due. Remember, many non-U.S. schools are unfamiliar with the U.S. financial aid process—so allow extra time for your loan to be processed.

Financial Aid Process With a Non-U.S. School

U.S. students studying at Title IV eligible foreign schools are only eligible for subsidized and unsubsidized Stafford loans and PLUS loans. No federal grant aid is available. First, contact your school’s overseas study office or financial aid office. 

  • Follow any special instructions the office gives you.
  • If you are not sure if your school is eligible for federal student aid, contact ASA.
  • Then, fill out a Free Application for Federal Student Aid (FAFSA).
  • Find your school’s code on the FAFSA website. If your school’s code is not there, contact ASA.
  • When completing the FAFSA, use your mailing address—and not an email address—as your contact information.
  • The FAFSA will be used to generate your Student Aid Report (SAR). A SAR received by email may not have all the information your school needs to determine your eligibility for aid.
  • Receive your SAR in the mail.
  • You may also call 800.4.FEDAID (in the United States and Canada) or 319.337.5665 to request your SAR.
  • Make a photocopy of your SAR for your records.

What Happens Next

  • You will need to complete a Master Promissory Note. Ask your school for specific instructions.
  • Your school will evaluate your eligibility for federal student loans and notify you of your loan award. 
  • Be sure to collect local numbers, email addresses and web URLs for the Direct Loan program, CPS (FAFSA processor), and your loan servicers, as toll-free numbers will not work outside the United States.
  • Be sure to notify your federal student loan servicer of any updated contact information for you.

Am I Eligible?

You should be able to receive federal loan funds for your overseas education as long as:

  • You are a U.S. citizen or an eligible non-citizen.
  • Your educational institution is considered eligible by the U.S. Department of Education.
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Borrowing for Medical or Health Professions School

Due to their extended periods of study, medical/health professions students receive special borrowing benefits. If you are a medical/health professions student, you will probably face at least 6 more years of school after getting your undergraduate degree. Those years entitle you to higher borrowing limits and, if you attend school in the United States, specialized deferment and forbearance options.

Medical/health professions students may receive the unsubsidized Stafford graduate student annual loan limit of $20,500, plus an additional amount based on the length of the academic year and program of study.

Type of Medical/Health Professions Program

  For a 9-Month Academic Year,   You May Receive…

  For a 12-Month Academic Year,   You May Receive…

Public health, administration, chiropractic, and other degrees:

  • Graduate of public health
  • Graduate in allied health
  • Doctor of chiropractic
  • Doctoral degree in clinical psychology
  • Master’s or doctoral degree in health administration
  • Bachelor or master of science in pharmacology or equivalent degree

  Up to $12,500 in unsubsidized   Stafford loans.

  Up to $16,667 in additional   unsubsidized Stafford loans.

Allopathic, osteopathic, veterinary, dentistry, naturopathic, and other degrees:

  • Allopathic medicine
  • Osteopathic medicine
  • Dentistry
  • Veterinary medicine
  • Optometry
  • Podiatric medicine
  • Naturopathic medicine

  Up to $20,000 in unsubsidized 

  Stafford loans.

  Up to $26,667 in additional   unsubsidized Stafford loans.

Remember, the aggregate loan maximum you may borrow is $224,000. $65,500 of that amount may be in subsidized loans (graduate students were eligible for subsidized Stafford loans prior to July 1, 2012). 

Contact your school’s financial aid office to talk about the options you have for financing your medical education.

 

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