How do federal student loans work?

Federal government student loans are a common way for students to finance their education. Here’s how they work:

1. Application Process: To apply for federal student loans, students must first complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is used to determine the student’s eligibility for federal student aid, including grants, work-study, and loans.
2. Types of Federal Student Loans: There are four types of federal student loans: Direct Subsidized, Direct Unsubsidized, Direct PLUS, and Perkins Loans.

• Direct Subsidized Loans are available to undergraduate students with financial need. The government pays the interest on these loans while the student is in school and during the six-month grace period after graduation.
• Direct Unsubsidized Loans are available to undergraduate, graduate, and professional students. Interest accrues on these loans while the student is in school and during the grace period.
• Direct PLUS Loans are available to graduate and professional students, as well as parents of undergraduate students. Interest accrues on these loans from the date of disbursement.
• Perkins Loans are available to undergraduate and graduate students with exceptional financial need. These loans are made through the student’s school and have a fixed interest rate.

3. Interest Rates: Interest rates on federal student loans are set by Congress and are typically lower than rates offered by private lenders. The interest rate on Direct Subsidized and Direct Unsubsidized Loans for undergraduate students is currently 3.73% for loans disbursed on or after July 1, 2021. The interest rate on Direct PLUS Loans for graduate students and parents is currently 6.28% for loans disbursed on or after July 1, 2021.
4. Repayment: Repayment of federal student loans typically begins six months after graduation or dropping below half-time enrollment. Federal student loans offer several repayment options, including Standard Repayment, Graduated Repayment, and Income-Driven Repayment. Borrowers can change their repayment plan at any time.
5. Forgiveness and Discharge: Federal student loans may be eligible for forgiveness or discharge under certain circumstances, such as Public Service Loan Forgiveness, Teacher Loan Forgiveness, and Total and Permanent Disability Discharge. These programs have specific eligibility requirements and terms.
6. Servicers: Federal student loans are serviced by loan servicers, which are companies that manage the repayment of the loans on behalf of the government. Borrowers can contact their loan servicer to manage their loans, make payments, and discuss their options for repayment.

Overall, federal government student loans can be a useful tool for financing higher education. They offer lower interest rates and more flexible repayment options than private loans, and may be eligible for forgiveness or discharge under certain circumstances.