1. What are the main differences between federal student loans and private student loans?
Answer:Federal student loans are loans made or guaranteed by the Department of Education. Private or non-federal student loans are any other type of student loans.
While both federal student loans and private student loans allow you to borrow money to pay for education expenses, there are some distinct differences.
Federal student loans can be better for students in several important ways:
In some cases, the federal government will subsidize - pay the interest on - your federal student loan while you are in school.
- Your interest rate for a federal student loan is generally fixed, not variable; most private student loans carry variable interest rates.
- Federal student loans allow you to limit the amount you must repay each month based on your income.
- For borrowers pursuing careers in public service, loan forgiveness on federal student loans may be available after 10 years.
Federal student loans also feature other important borrower protections, including:
Private student loans
- Options to delay or temporarily forgo payments (like deferment and forbearance)
- Discharge upon a borrower's death
- Discharge upon permanent disability (with certain limitations)
But the consequences for defaulting on a federal student loan are pretty serious:
- Your wages may be garnished without a court order; and
- You can lose out on your tax refund or Social Security check (funds would be applied toward your defaulted student loan).
are any student loans that are not federal student loans. These loans do not offer the flexible repayment terms or borrower protections featured by federal student loans. Private student loans are not funded or subsidized by the federal government; instead, they are funded by banks, credit unions, or other types of lenders.
The bank or lender – not the federal government – sets interest rates, loan limits, terms, and conditions of private student loans. Your ability to qualify for and borrow a private student loan may be based on numerous factors that can include your credit history, whether or not you choose to have a co-signer, your co-signer's credit history, your choice of school, and your course of study. While private student loans are all structured differently, they are generally different from federal student loans in several ways and may include:
- Variable interest rates that can rise when interest rates rise during the life of the loan — which can substantially increase your payment
- Fewer options to reduce or postpone payments
- Less flexible repayment options
2. What is a Perkins loan?
Answer:Perkins loans are a type of federal student loan that is awarded to undergraduate and graduate students based on financial need.
- This is a campus-based loan program: the school acts as the lender using funds provided by the federal government.
- The Perkins loan is a subsidized loan, meaning that the federal government pays the loan's interest while you are in school. You will typically start making your payments nine months after you graduate or drop below half-time enrollment.
- Perkins loans have no origination or default fees, and the interest rate will not change. Like many other federal student loans, the standard repayment term is ten years from the date of your first payment. The amount of your Perkins loan is determined by your school's financial aid office.
3. What is a PLUS loan?
Answer:There are two types of PLUS loans: the Parent PLUS loan and the Grad PLUS loan. All PLUS loans have a fixed interest rate and are not subsidized.
- All PLUS loans have a fixed interest rate and are not subsidized, which means that interest accrues while enrolled in school.
- The Parent PLUS loan allows parents of dependent students to borrow money to cover any costs not already covered by the student's financial aid package, up to the full cost of attendance. The program does not set a cumulative limit to how much parents may borrow, and Parent PLUS loans are the financial responsibility of the parents, not the student.
- Grad PLUS loans allow graduate and professional students to borrow money to pay for their own education.
- Parent PLUS repayment begins 60 days after the funds are fully disbursed with up to 10 years to repay. Parents have the option of deferring repayment on Parent PLUS loans while the undergraduate student on whose behalf they borrowed the PLUS loan is in school, but they must begin repayment once the student graduates or drops below full-time enrollment.
- Graduate students may defer repayment on Grad PLUS loans while they are in school, but they also must begin repayment once they graduate or drop below full-time enrollment.
4. What is a Stafford loan?
Answer:Stafford loans are a type of federal student loan that are either subsidized – the government pays the interest while you're in school – or unsubsidized – you pay all the interest.
- Stafford loans are either subsidized – the government pays the interest while you're in school – or unsubsidized – you pay all the interest, although most students will not start making these payments until after graduation. Unsubsidized Stafford loans add the accrued interest to the loan balance, increasing the size and ultimate cost of the loan.
- Both subsidized and unsubsidized Stafford loans require the completion of the Free Application for Federal Student Aid (FAFSA). To receive a subsidized Stafford loan, you must be able to demonstrate financial need. All students, regardless of need, are eligible for the unsubsidized Stafford loan.
5. What is forbearance?
Answer:Forbearance is a temporary postponement or reduction of your student loan payments for a period of time because you are experiencing financial difficulty. You can receive forbearance if you're not eligible for a deferment. With forbearance, you will eventually owe the new interest charges even if you're not making payments. Unlike deferment, with forbearance interest accrues whether your loans are subsidized or unsubsidized, and you're responsible for repaying it even while in forbearance. Your loan holder can grant forbearance in intervals of up to 12 months at a time for up to three years. You have to apply to your loan servicer for forbearance, and you must continue to make payments until you've been notified your forbearance has been granted.
These rules apply to federal student loans. Private student loan forbearance usually varies and is less extensive than the federal program. Contact your loan servicer as early as possible if you want to explore this option.
6.How do I apply for student loans?
Answer:All loans made by the U.S. Department of Education require you to complete the Free Application for Federal Student Aid (FAFSA). Schools that receive information from your FAFSA will be able to tell you if you qualify for federal student loans. Almost every American family qualifies for federal student loans.
For private student loans, you might first consult your local credit union or bank, if you or your family holds an account there. You should also consult your school's financial aid office to see if they have any lenders who offer special rates to their students.
7. What is deferment?
Answer:A deferment is a temporary pause to your student loan payments for specific situations such as active duty military service and reenrollment in school. You can receive a deferment on Federal student loans for certain defined periods.
You don't have to pay interest on the loan during deferment if you have a subsidized loan. If you have an unsubsidized loan, you're responsible for the interest during deferment. If you don't pay the interest as it accumulates, it will be added to your loan balance, and the amount you have to pay in the future will be higher. You have to apply for a deferment with your loan servicer, and you must continue to make payments until you've been notified your deferment has been granted.
Private student loans may or may not have a deferment option, and the rules vary among lenders. Contact your loan servicer as early as possible if you want to explore this option.