The government offers students several different federal loan options to help pay for college. These loan offers are designed specifically for students, and carry numerous advantages over private loans, including loan-accessibility and lower interest rates.
You Don’t Need a Cosigner
One of the biggest benefits of federal student loans is they don’t require cosigners. Students can apply and sign for loans independently, even if they’re still in high school. This means they don’t have to rely on a relative for financial help, making the process much easier for legally independent and financially independent students.
You Don’t Have to Have Credit History
Most loans and lines of credit require applicants to have a good credit history. If you don’t have much credit history or if you have less than stellar credit history, you might not be approved. Fortunately, federal student loans don’t require any credit history. As long as you’re enrolled in an undergraduate or graduate program and you’ve demonstrated financial need, you won’t be denied for a federal student loan.
You’re Guaranteed Low-Interest Rates
Interest rates can be both high and unpredictable for many types of loans, but federal loans offer fixed interest rates that tend to be manageable for most applicants. Federal student loan rates are standard for all applicants, but they vary depending on the loan type and the date of disbursement.
For the 2017-2018 academic year, for instance, undergraduate students can take out either subsidized or unsubsidized Stafford Loans at an interest rate of 4.45 percent. For the same academic year, graduate students can take out unsubsidized Stafford Loans at a rate of 6 percent, while parents and graduate students can take out PLUS Loans at a rate of 7 percent. This changes from year to year, but the difference in subsequent years is unlikely to be major.
You May Be Eligible for Subsidized Loans
If you’re eligible for a subsidized Stafford Loan, however, the federal government foots the bill for your interest payments while you’re in school, as long as you’re enrolled at least half time. That means you could save hundreds or even thousands while you focus on your college education. Keep in mind that not everyone can take out subsidized loans, but those who demonstrate financial need on their FAFSA® form are typically eligible.
Multiple Repayment Options
The repayment part of the loan process is never the most enjoyable part. When you take out federal student loans, though, at least you’ll have a few options for repaying your debt. Here are some of the most common repayment plans:
- Pay as You Earn: You’ll pay up to 10 percent of your discretionary income for a term of 20 years. You may qualify for this based on your income and debt level.
- Revised Pay as You Earn: This plan has a payment cap of 10 percent of your discretionary income, and the term can be 20 or 25 years. Almost every person with a Stafford Loan can qualify.
- Income-Based Repayment: You’ll pay 10 to 15 percent of your monthly discretionary income for a term of 20 to 25 years. Your income level and debt amount determine eligibility.
- Income-Contingent Repayment: You’ll pay 20 percent of your monthly discretionary income for 25 years. Your parents may qualify for this plan if they’ve taken out a federal PLUS loan.
You May Be Eligible for Deferred Payments
Finding an extended repayment plan that works with your budget is great, but what if you can’t repay your loans due to unemployment or other unforeseen circumstances?
If you have federal student loans, you may be able to defer the payments for up to three years. This essentially pauses your payments and ensures that you don’t incur late payment fees during the deferment period.
Keep in mind that your student loan will likely continue to accrue interest even while your payments are paused. This would increase your total debt over time. However, it may still be a smart option, especially if you have a lengthy job search process ahead of you.
You Can Consolidate Federal Loans
If you take out multiple student loans over the course of your college career, you’ll have to repay each one individually after you graduate or leave school. Making multiple loan payments isn’t sustainable for most recent grads.
That’s why it’s easy to consolidate all of your federal student loans into a single loan with one payment that’s affordable. You might not lower your interest rate substantially or save big bucks by consolidating, but you will streamline your loan payments and simplify your financial life, which is important no matter where your career path takes you.
Your Loans May Be Forgiven
While you should always have a plan for repaying your debt, one of the coolest perks of federal student loans is that they may be forgiven if you meet certain criteria. If you work in public service, such as for the government or for a nonprofit, you can apply for the Public Service Loan Forgiveness program. If approved, you’ll make payments on an income-driven repayment plan, and after 10 years the balance of your federal loans will be forgiven.
If you join one of the above income-driven repayment options, your loans will eventually be forgiven, too. Depending on your plan, you may have to wait for 25 years for forgiveness, but that could be well worth the wait.
Federal loans are just one of the many funding opportunities that college students can explore. With so many benefits, however, it’s easy to see why they’re so helpful for students who demonstrate financial need. Ready to apply? Fill out your FAFSA® form and find out if you’re eligible for federal student loans.