Can you get extra student loan money? Good question! First, lets do a deep dive on Federal Student Loans.
Student loans have become a normal way to get through college in the United States. Whether the student is only borrowing a few thousand to cover the shortage on his tuition payment or funding his whole college with loans, everyone seems to know someone affected by student loans. The United States promotes higher education through an increase in earning potential by getting a degree at a university. Student loans are the avenue most students take to pay for this higher education and is viewed as financing an investment because of the return on the college degree leads to higher income-earning potential. Young adults across universities everywhere are financing their college expenses with student loans.
Types of Federal Student Loans
The U.S. Department of Education’s office called Federal Student Aid provides loans, grants, and work-study funds. The purpose of the loans the U.S Department of Education provides is to aid students with higher education costs. These costs could range from tuition, books, supplies, and living expenses. The types of the loans provided differ based on interest rate, repayment options, and whether the student needs to pay on the loan during school.
The federal loans offered through the government are subsidized, unsubsidized, and Direct PLUS loans. Subsidized loans are offered to students that demonstrate financial need during their time at college based on their Free Application for Federal Student Aid (FASFA). The amount that can be borrowed in a subsidized loan is limited and the interest rate is fixed with no payment due until the grace period after graduation ends. The grace period usually begins immediately after graduation and lasts 6 months, which gives students time to find a job and start their career before principle repayment on the loans begin. These subsidized loans do not compound any interest on the principle loan balance until the grace period ends and loan repayment starts. This means while is in school pursing their degree part-time the loan is not growing from the original amount borrowed. Unsubsidized federal student loans are available to any student undergraduate or graduate similar to subsidized loans, but there is no need to demonstrate financial need. These student loans also have a fixed interest rate but the student is responsible for paying the interest on the loan during all the periods of the loans. This means that the loan is compounding interest on the original principle while the student is in college.
The third type of federally insured student loans is the Direct PLUS loan. This loan is provided for parents of students. The limits that can be borrowed on this type of loan is the cost of attendance of the university minus the other federal loans provided. The parents are allowed these loans to cover extra costs that cannot be borrowed by the student. The interest rate for PLUS loans can be fixed at ~6% which is typically higher than subsidized and unsubsidized federal loans.
These three types of federal students are used by students to fund education over private loans because of the advantages of the federally insured loans. Federal student loans are funded by the U.S Department of Education while private loans are provided by the private institution which could be banks, universities, credit unions, or financial lending institutions. With federal student loans, the principle repayment is not due until the grace period ends after graduation or disenrollment. The student loan interest rate is fixed and much lower than provided by private institutions. The student also doesn’t need a credit check to borrow large amounts of student loans compared to the process of getting an unsecured loan at a private institution. The borrowing of student loans can also allow the student to establish a credit history. The repayment plans can be adjusted based on the student’s income post-college and hardship deferral is available for those struggling. If the student were to die or become disabled, then all federal loans would become forgiven at this time. Compared to private lending, federal loans have advantages that are not found in private loans.
Federal Loan Benefits
The U.S Department of Education funds these federal loans themselves or gets the funds from itself or private institutions. These private institutions provide the funds because these loans are backed by the government itself and if the student were to default then the loans are guaranteed by the government and paid to the lender. With the amount of student loan debt outstanding continuing to grow this is an increasing liability for the U.S government which would need to “make good” on all loans defaulted on.
While there are more advantages of federal student loans than private loans they cannot be filed into a bankruptcy. Which means that the student would need to die or become disabled to eliminate the loans without paying them off. The government also has the ability to garnish wages when federal student loans go into default. This can come out of your wages or other forms of income such as a tax refund or social security benefits. Borrowers need to be aware of the risks that come with borrowing student loans since there is no escaping paying them back.
Types of repayment options vary from the type of federally insured student loan and the situation of the borrower based on income and school status. The types of loans are typically broken down into two types, the balance-based repayment plan and the income-driven repayment plans. The balance-based repayment plan allows the borrower to pay level payments depending on the life of the loan which can be 10, 25, or 30 years for larger loans. These repayment amounts increase over time to compensate for the lower payments made at the beginning of the loan. The income-driven repayment options are unique to the borrower’s situation based on a formula calculated on the income of the borrower. It makes the payments more affordable for those with lower incomes even with larger loan principle amounts. This repayment option typically extends the life of the loan further because of the lower payments made. This formula is recalculated yearly based on the borrower’s earnings yearly reported on their federal tax return.
The financial aid office at the U.S Department of Education also offers loan forgiveness to certain career fields such as public service professionals such as law enforcement or teachers. In such programs, the government offers forgiveness of any loans outstanding after 10 years of paying the minimum payments on the federal student loans. Opposed to paying repayment plans that can range up to 25 years this would be a significant reduction in the amount of debt that needs to be repaid on the loans amounts.
How much can I get from student loans
Your school is actually determines which loan types you are eligible for when you fill our you FASFA each academic year. How much money you can get is based on the loan limits for what year in school you are and what type of student (dependent or independent). This means undergraduate loan limits will be different than graduate loan limits. An independent student is at least 24 years old, married, a professional student, a graduate student, veteran, or orphan to name a few. While a dependent student is still supported by ones parents or the parents are elible to take our Direct Plus Loans. Long story short, the dependent student is dependent on their parent or guardian. If you are a dependent student in which your parents are not eligible for Parent Plus then you may get extra unsubsidized funding.
So how much money can you get from federal student loans?
Dependent Undergraduate Students
- First Year – $5,500 Overall with $3,500 subsidized
- Second Year – $6,500 Overall with $4,500 subsidized
- Third Year and Beyond – $7,500 Overall with $5,500 subsidized
- Total Limits – $31,000 Overall with $23,000 subsidized
Independent Undergraduate Students
- First Year – $9,500 Overall with $3,500 subsidized
- Second Year – $10,500 Overall with $4,500 subsidized
- Third Year and Beyond – $12,500 Overall with $5,500 subsidized
- Total Limits – $57,500 Overall with $23,000 subsidized
Graduate Students or Professional Students
- Annual Limit – $20,500
- Total Limit $138,500 which includes any undergraduate loans