10 Things you Probably didn’t know about Federal Student Loans
Federal student loans - many of us have them. Our long time followers know that Meshack and I have them. In our next several posts, we’re going to be writing a lot about college and student loans so that we can all stay informed.
Let’s start by uncovering 10 things that you probably didn’t know about federal student loans.
If you’re more of the video type, check out the YouTube video above!
They don’t require a credit check!
This is different than nearly every other type of loan out there. Instead, you qualify for most federal student loans simply by filling out the FAFSA, the free application for federal student aid at fafsa.ed.gov. The only federal student loans that require a credit check are PLUS loans including GRAD plus and Parent Plus loans.
You can get a .25% reduction on your federal student loan interest rates by establishing automatic payments.
We discovered that a lot of people didn’t know this when we posted our YouTube video on the best way to pay off federal student loans fast. This is a super easy way to save yourself some money when repaying your student loans, so if you don’t currently have auto-debit set up with your loan servicer, go ahead and set that up.
There is a limit to how much you can take out.
For dependent undergraduate students for example, that limit ranges between $5,500 to $7,500 per year depending on what year you are in school, and there’s a lifetime limit of $31,000. If you’re a graduate student, there are limits as well.
If you’re an undergraduate student, and your parent or guardian applies for a Parent Plus Loan and gets denied, you can automatically qualify for a higher amount of unsubsidized loans.
In a case like this, those limits we just talked about go up to between $9,500 and $12,500 per year, with a lifetime total of $57,500.
Your student loan debt is discharged in the unfortunate event that you become permanently disabled or pass away.
This is one type of debt that truly dies with you.
In most cases, to qualify for a Total and permanent disability or TPD discharge, you must complete and submit a TPD discharge application, along with documentation showing that you meet the requirements for being considered totally and permanently disabled, to Nelnet which is the servicer that assists the department of education with the TPD discharge process.
You can show that you qualify for a TPD discharge by providing documentation from either the U.S. Department of Veterans Affairs, the Social Security Administration, or a physician. There are specific requirements for each type of supporting documentation that you can submit to show your eligibility.
Federal student loans have origination fees.
An origination fee is a percentage of your loan amount charged by the lender for the processing of your loan. Federal student loans have an origination fee, so the amount you may receive as a disbursement may be slightly lower than the amount you accept. Right now, that fee is 1.057% for direct unsubsidized and subsidized loans and 4.228% for PLUS loans. Keep in mind that this fee is subject to change each year.
There are a bunch of different repayment options.
There are plans that start off with low payments and graduate over time. There are plans with different lengths. There are plans based on income. There are plans that allow you to get your loans forgiven after a certain amount of time. We made a YouTube video that goes over each of the different repayment plan options.
Federal student loans are daily interest loans.
That’s right - interest accrues every single day.
Many people don’t know when their student loan interest gets capitalized.
Capitalization means that your unpaid interest is added to your principal balance so that any new interest that accrues is based off of that new, increased principal amount. Unpaid interest is generally capitalized following periods of deferment on an unsubsidized loan and/or forbearance on any types of loan. Outstanding interest also gets capitalized following the grace period on an unsubsidized loan, if you switch from certain income driven repayment plans to another type of plan, or if you don’t recertify your income on time while on an income driven plan.
This one is a little satirical, but in case you didn’t know, moving out of the country does not excuse or relieve you from paying back your student loans.
We’ve heard this before and I don’t know where people are getting this from, but it’s simply not true. Your student loans will be right here waiting and growing in the meanwhile.
We dive deep into tackling debt repayment and so much more in our program, MONEY 180™, so if you’re interested in learning more about that, go on and check it out!