Federal Direct Student Loans Q & A

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Federal Direct Student Loans Q & A

What types of federal direct student loans are available at LDCC?

The William D. Ford Federal Direct Loan Program is the largest federal student loan program. Under this program, the U. S. Department of Education is your lender. There are three types of Direct Loans available at LDCC—Direct Subsidized Loans, Direct Unsubsidized Loans and Direct Parent PLUS Loans.

What is a Direct Subsidized Loan?

A subsidized loan is awarded on the basis of financial need. The federal government pays the interest on the loan while the borrower is enrolled in at least a half-time status (6 credit hours), and during the repayment grace period. Student must begin repaying this loan 6 months after you cease to be enrolled at least half-time. The interest rate on subsidized loans can be found at www.studentaid.ed.gov/types/loans/interest-rates.

What is an Unsubsidized Direct Loan?                                                                                                                                                                 An unsubsidized loan is not based on financial need but, total need may not exceed the cost of attendance. The federal government does not pay the interest while the borrower is in school. All interest is the borrower's responsibility. You will be charged interest from the time the loan is disbursed until it is paid in full. Students can either pay the interest while they are in school or let it accrue. If it is not paid, it is added to the principle (capitalized) when the borrower goes into repayment. If your interest is capitalized, it will increase the amount you have to repay. You can choose to pay the interest as it accumulates; if so, you'll repay less in the long run. Students must begin repaying this loan 6 months after you cease to be enrolled at least half-time. The interest rate on unsubsidized loans can be found at www.studentaid.ed.gov/types/loans/interest-rates.

What is a Federal Direct Parent PLUS Loan?                                                                                                                                                   This loan is available for parents of eligible dependent students.  Parents are able to apply for a PLUS Loan if the dependent student is enrolled at least half-time and in a degree seeking program. The borrower will be subject to a credit check to determine eligibility.  Like unsubsidized loans, the borrower is responsible for all interest payments; however, the repayment period for this loan is determined by your lender.

NOTE: The Parent Plus Loan will NOT be disbursed until the MPN and a Parent PLUS Loan Authorization Form are complete. If the parent is not approved, the student will automatically be awarded the maximum amount of the Direct Unsubsidized Loan.

How much money can I borrow in federal student loans?                                                                                                                                      If you are a student--$5,500 to $10,500 per year in Direct Subsidized and Direct Unsubsidized Loans depending on certain factors, including your credit hours earned in college.

If you are a parent of an eligible dependent student—the remainder of your child’s college costs that are not covered by other financial aid. Note: A credit check is required for a parent loan (called a PLUS Loan).

Why should I take out federal student loans?                                                                                                                                               Federal student loans are an investment in your future. You should not be afraid to take out federal student loans, but you should be smart about it. Federal student loans offer many benefits compared to other options you may consider when paying for college: 

  • The interest rate on federal student loans is almost always lower than that on private loans—and much lower than that on a credit card!
  • You don’t need a credit check or a cosigner to get most federal student loans.
  • You don’t have to begin repaying your federal student loans until after you leave college or drop below half-time.
  • If you demonstrate financial need, you can qualify to have the government pay your interest while you are in school.
  • Federal student loans offer flexible repayment plans and options to postpone your loan payments if you’re having trouble making payments.
  • If you work in certain jobs, you may be eligible to have a portion of your federal student loans forgiven if you meet certain conditions.

What should I consider when taking out federal student loans?

Before you take out a loan, it’s important to understand that a loan is a legal obligation that you will be responsible for repaying with interest. You may not have to begin repaying your federal student loans right away, but you don’t have to wait to understand your responsibilities as a borrower. 

Be a responsible borrower.

  • Keep track of how much you’re borrowing. Think about how the amount of your loans will affect your future finances, and how much you can afford to repay. Your student loan payments should be only a small percentage of your salary after you graduate, so it’s important not to borrow more than you need for your school-related expenses. 
  • Research starting salaries in your field. Ask your school for starting salaries of recent graduates in your field of study to get an idea of how much you are likely to earn after you graduate. You can use the U.S. Department of Labor's Occupational Outlook Handbook to estimate salaries for different careers or research employment opportunities advertised in the area where you plan to live to get an idea of a local starting salary. You also can use the Department of Labor's career search tool to research careers and view the average annual salary for each career.
  • Understand the terms of your loan and keep copies of your loan documents. When you sign your promissory note, you are agreeing to repay the loan according to the terms of the note even if you don’t complete your education, can’t get a job after you complete the program, or you didn’t like the education you received.
  • Make payments on time. You are required to make payments on time even if you don’t receive a bill, repayment notice, or a reminder. You must pay the full amount required by your repayment plan, as partial payments do not fulfill your obligation to repay your student loan on time.
  • Keep in touch with your loan servicer. Notify your loan servicer when you graduate; withdraw from school; drop below half-time status; transfer to another school; or change your name, address, or Social Security number. You also should contact your servicer if you’re having trouble making your scheduled loan payments. Your servicer has several options available to help you keep your loan in good standing.

How do I apply for a federal student loan?

To apply for a federal student loan, you must complete and submit a Free Application for Federal Student Aid (FAFSA)—school code is 041301. Based on the results of your FAFSA, your financial aid advisor will determine the actual amount of your loan and you will be notified via LOLA. You must check your LOLA account for an award notice when you loan has been originated.

Before you receive your loan funds, you will be required to:

  • complete a Loan Entrance Counseling Session and
  • complete and sign a Master Promissory Note (MPN) at www.studentloans.gov,
  • submit a Direct Loan Request Form to LDCC Office of Financial Aid and
  • accept your loan award online via LOLA.

How will I receive my Direct Federal Student Loan?

LDCC will first apply loan funds to your school account to pay for tuition, fees, books and other school charges. If any loan funds remain, LDCC will disburse funds to you via your Higher One Debit Card. Any remaining loan funds must be used for your education expenses.

How does a parent apply for the Direct Parent Plus Loan?

  • Student’s FAFSA must be complete and submitted to LDCC—school code 041301.
  • The parent must log into www.studentloans.gov and complete the application process.
  • If approved, the parent will need to complete the Master Promissory Note at www.studentloans.gov.
  • Once LDCC is notified of the Plus Loan, a form entitled Parent Plus Authorization Form will appear on the student’s Banner Self-Service Account under Unsatisfied Requirements. This form must be completed and signed by the parent and submitted to the LDCC Financial Aid Office.

How much can my parent borrow?                                                                                                                                                                       The yearly limit on a Direct Parent PLUS Loan is equal to your cost of attendance minus any other financial aid you receive. For example, if your cost of attendance is $6,000 and you receive $4,000 in other financial aid, your parent can borrow up to $2,000.

How will I receive the Direct Parent PLUS loan?                                                                                                                                             LDCC will first apply Direct Parent PLUS Loans to your school account to pay for tuition, fees, books and other school charges. If any loan funds remain, your parent will receive the amount via check, unless they authorize the amount to be released to you and LDCC will disburse the funds via your BankMobile Disbursements refund perference. Any remaining loan funds must be used for your education expenses.

How do I repay a Federal Direct Student Loan?                                                                                                                                              After you graduate, leave school, or drop below half-time enrollment, you must complete the Exit Counseling Session at www.studentloans.gov. You will then receive information about repayment and your loan provider will notify you of the date your loan repayment begins. We cannot emphasize enough the importance of making your full loan payment on time either monthly (which is the usual pay cycle) or according to your repayment schedule. If you do not make your regular payments, you could end up in default, which has serious consequences. Student loans are real loans—just as real as car loans or mortgages. You must pay back your student loans.

What is Default?

Default is serious business! You are legally required to repay your educational loans. Even if you drop below half-time status, don't finish college, can't find a job right away, or are dissatisfied with the education you received, your education loan must be repaid when your grace period expires. If you don't fulfill your end of the agreement, there are severe consequences. For instance, the entire unpaid amount of the loan, including interest, may be immediately due. Here are some other problems you may face if you default on a student loan:

  • Loss of federal and state income tax refunds
  • Legal action and assessment of collection charges including attorney fees
  • Loss of eligibility for other student aid and assistance under most federal benefit programs
  • Loss of eligibility for deferments
  • Loss of your professional license
  • Negative credit reports
  • Garnishment