Federal Student Loans Review

For many people, federal student loans are the only answer when planning to go to college. It’s free to apply for federal loans, and they provide various benefits that private loans may not — like fixed interest rates and forbearance options. Our guide below will help you choose the best federal student loans to meet […]

BY The GoodCall.com Team

Federal Student Loans Review

For many people, federal student loans are the only answer when planning to go to college. It’s free to apply for federal loans, and they provide various benefits that private loans may not — like fixed interest rates and forbearance options. Our guide below will help you choose the best federal student loans to meet your educational goals and make the most of your future.

Federal student loans: The basics 

Federal student loans are available to individuals who are seeking to borrow money to pay for college. Like most other loans, they’re supposed to be paid back with interest after you complete your education. But unlike private loans, government loans have terms and conditions that are set by U.S. law. That means they typically offer more benefits and favorable terms than private loans.

The United States launched the first federal loan program in 1958. Since then, federal student aid has enabled generations of Americans to afford college. 

Today, federal student loans are controlled by Federal Student Aid, an office of the United States Department of Education. Federal Student Aid provides more than $120 billion in financial aid each year. Federal student loans are available to almost anyone in the country who wants them, whether need-based or not. Federal loans are also available to parents who want to borrow money to help pay for their child’s education. 

Federal student loans: GoodCall’s full review 

Federal student loans are available for those planning to attend a four-year college, university, community college, career school, or technical school. They’re especially helpful for those with financial need since you don’t need to demonstrate creditworthiness to obtain a federal loan (which isn’t the case with most private loans). However, even those who are not in financial need can take out certain federal loans and benefit from the favorable terms that are offered.

The application process is relatively easy. To begin, all applicants must fill out the Free Application For Federal Student Aid (FAFSA). This information will be used by the college or university you plan to attend to put together your financial aid offer. You can choose to borrow the full offer amount or just a partial amount. You’ll also need to complete mandated entrance counseling and sign a Master Promissory Note. Once that’s done, you are all set to receive your federal student loan.

While most U.S. citizens, and even eligible non-citizens, can apply for a federal student loan, there are a few eligibility requirements to be aware of. For one, you must have a valid social security number. You must also be enrolled or accepted to a college or university and have a high school diploma or GED. You may be disqualified if you have certain drug-related or sexual offenses on your record. If you were born male, you must also register for the Selective Service. Qualifying non-citizens can also apply for and receive student aid.

Once your student loan package is awarded, you’ll be able to enjoy all of the benefits that it offers. For example, you do not need to start repaying federal loans until you’re no longer attending school. Some private loans require payments right away. With federal loans, you do not need to pass a credit check, while with most private loans you do. Federal loans also offer a variety of repayment plans, including income-based repayment plans. Private loans, generally, do not. You can also postpone federal loan payments for various reasons. 

But perhaps best of all, federal loans offer lower interest rates than private loans. Currently, undergraduate loans have a fixed interest rate of 4.53%, compared to an average fixed interest rate of more than 9% for private loans. 

Federal student loans pros and cons  

Federal student loans make it possible for millions of students to go to college each year. While they’re extremely popular, they may not be right for everyone. Here are a few points to consider:

Federal Student Loans advantages: 

Federal Student Loans disadvantages: 

  • The government can take money out of your wages if you default on your loan.
  • Lifetime loans capped at $31,000 for dependent students, up to $57,000 for individual students. This means that the loan may not be enough to cover all of your costs. 
  • Federal student loans cannot be discharged under bankruptcy.

Federal student loans details

  • Loan requirementsMust have a high school equivalent education and be enrolled in college, university, or career school.
  • Interest rates: Undergraduate loans carry an interest of 4.53%. Graduate loans carry an interest rate of 6.08%. Direct PLUS loans have an interest rate of 7.08%.
  • Loan terms: Federal student loans can be paid back over the course of 10 to 25 years.
  • Associated feesDirect Loans have a 1.059% fee attached. This amount is automatically deducted from any funds you receive but is added to the amount you have to repay. 
  • Repayment options: There are several repayment options for federal student loans, including a graduated repayment plan, an extended repayment plan, a pay-as-you-earn repayment plan, and an income-based repayment plan.
  • Grace period: When you graduate, leave school, or attend less than half-time, you can enjoy a grace period of six months before repayment begins.

Best federal student loans  

There are two main types of federal student loans: Direct Subsidized Loans and Direct Unsubsidized Loans

Subsidized loans are the most beneficial because the government will pay the interest on your loan for you as long as you’re attending school more than half time, during periods of deferment, and during the six month grace period before repayment begins. However, to receive a subsidized student loan, you must demonstrate a financial need. Factors like the cost of tuition, family contributions, and the presence of other aid-like grants all determine “financial need” and come from the information you provide on your FAFSA.

For those students who do not demonstrate a financial need for subsidized loans, they’ll have to go with a Direct Unsubsidized Loan. These loans offer all of the same benefits and advantages of federal student loans, except your loans will accrue interest right away. It’s recommended that you make interest payments while you’re attending school, or else it will accumulate and be added to your principal balance.

How to apply for federal student loans

So you’ve decided that federal student loans are the way to go. Here’s how to get your ducks in a row and apply for a fed loan today:

  1. Create a Federal Student Aid ID: You’ll need to do this before you can complete your FAFSA. If you’re a dependent, one of your parents will need an FSA ID as well. 
  2. Gather all of the documents you’ll need to complete your FAFSA form: A checklist of documents can be found here.
  3. Fill out your FAFSA form and submit it: Remember, you’ll need to list at least one school that you’re hoping to attend on the application.
  4. Keep tabs on your application statusYou may need to update information or take additional actions.
  5. After submitting your FAFSA, you’ll receive a Student Aid Report: Be sure to review this information for any errors.
  6. Contact the financial aid office of the school you plan to attend: They will provide you with your student loan aid package when it is ready
  7. Complete the entrance counseling requirement: You can do this online in 20 to 30 minutes.
  8. Sign the Master Promissory Note: This will release the federal funds.

The bottom line 

When it comes to borrowing for college, federal student loans offer the best terms and the best rates. They’re also the easiest types of loans to obtain. Because of this, you should carefully consider how much you’re borrowing and remember that you’ll be expected to pay it back. To be on the safe side, remember to think about how much you’re planning to make in your career after you graduate and compare that to how much you hope to borrow.