All About Federal Student Loans
FINANCIAL AID TV - A Playlist of Video answers about federal student loans!
What is a federal student loan?
A loan is borrowed money you must repay with interest. A student loan is borrowed money available for educational expenses. No payments on the loan principal are expected until the student leaves school or drops below half time (6 credits a semester). Student loans must be repaid (principal and interest) but repayment can be over an extended period of time. The federal student loan program is called the Federal Direct Lending Program.
The Federal Direct Lending Loan program actually consists of the following:
- Stafford Loan (subsidized and unsubsidized)
- Parent Loan for Undergraduate Student (PLUS)
There are two basic types of Stafford loans: subsidized and unsubsidized.
Subsidized Stafford Loan - The federal government pays the interest on your loan while you are in school (attending at least six credits). You must have demonstrated financial need in order to qualify for a subsidized loan.
Unsubsidized Stafford Loan - You, the student, are responsible to pay the interest on the loan while in school (attending at least six credits) and during the six month grace period. You can pay the interest as you go on a monthly basis or you can allow it to accumulate and be added to the principal amount of your loan.
What are my responsibilities as a borrower?
Because Direct Loans are offered through the federal government, there are responsibilities that go along with them. Also, you must have a U.S. Department of Education Personal Identification Number (PIN) in order to perform certain requirements, such as completion of online counseling sessions.
As a new Federal Direct Loan borrower, you will be required to complete loan entrance counseling before your loan can be paid to your account. The entrance counseling will discuss topics such as eligibility requirements, allowable loan amounts, repayment options and more.
As a federal Direct Loan borrower, before you graduate, leave school or drop below half time enrollment (6 credits), you are required to complete exit loan counseling. The exit counseling session will discuss topics such as repayment options, grace periods, deferment, forbearance and more. Both the entrance and exit counseling can be completed online.
First time borrowers must also sign a Master Promissory Note (MPN), which is a contract that requires you to repay your loan in full. You will need your federal PIN to sign the note electronically.
You do not have a choice on not repaying the loan because you didn't complete the program or you don't like the education you received. A loan is a loan. If you take out the loan, you MUST repay it.
How much can I borrow?
The maximum amount a student can borrow for a full academic year depends on the number of credit hours you have earned at Middlesex Community College. This credit total includes transfer credits that have been accepted from another school.
Earned Credit Hours - Maximum Year Loan
0 - 30 Credits - $3,500.00
31 - > Credits - $4,500.00
You may qualify for additional loan funding if you filed your FAFSA as an independent student. Independent students may be eligible for an additional $4,000 unsubsidized Stafford loan (up to $2000 per semester).
The maximum amount a student can borrow for their undergraduate career (referred to as Aggregate Amount) is as follows:
Dependent Students $31,000
Independent Students $57,000**
** no more than $23,000 may be in subsidized loans.
How do I know if I am eligible for a student loan?
To receive a student loan, you must meet all eligibility requirements for federal student aid as well as the ones listed below:
- Enrolled in a minimum of six credits each semester (and remail enrolled through the term) in an eligible program of study.
- Demonstrate financial need for the subsidized Stafford loan.
- Be a U.S. citizen or eligible non-citizen.
- Maintain satisfactory academic progress.
- Not be in default on a prior student loan or owe a federal grant overpayment.
- Have a completed and approved FAFSA on file with MCC and submitted whatever additional documents requested by the Financial Aid Office.
When and how do I receive the loan funds?
Loans are paid (disbursed) to your student account at the mid-point of the semester and on a weekly basis thereafter. When your loan is disbursed, it is used first to pay any outstanding charges. If any loan money is left over, the school sends you a refund check approximately two weeks after disbursement. This check is made out in the name of the student (the borrower). (PLUS or parent loans are made out to the parent borrower.)
Important! Federal student loans are only disbursed when your class participation is verified, you have a complete financial aid file at the college, and you satisfy all other federal requirements to receive a loan.
What is the Direct Loan 150% loan limit rule?
As of July 1st, 2013, any first-time borrower, (which is defined as someone who has no outstanding balance on a Federal FELP or Direct loan when receiving a Direct loan on or after July 1, 2013), will only be able to obtain federal Direct Subsidized loans for a maximum of 150% of the published program length in which they are enrolled. Additionally, the subsidized loans that had been borrowed up to the 150% point will lose further government subsidy and interest will begin to become the student's responsibility if they do not graduate by the 150% point (and continue to be enrolled in the same or a shorter undergraduate program). From that point forward, these subsidized loans will become unsubsidized loans.
Here are a few facts that you need to know:
- Students may receive Direct Subsidized loans for no more than 150% of the length of the current academic program. For example, a student enrolled in a two-year program will have three years' worth of subsidized loan eligibility and a student enrolled in a one-year certificate program will have one and one half years' worth of subsidized loan eligibility.
- Once a student reaches the 150% mark in a particular program and not graduate, their future subsidized loan eligibility in that program will end. They may, however, be eligible for unsubsidized loans.
- A student who reaches the 150% limitation will have their interest subsidy end for all outstanding subsidized loans if the student does not graduate and continues to be enrolled in the same or a shorter undergraduate program. Repayment does not begin, but like unsubsidized loans, the student (rather than the government) would become responsible for interest that accrues from this point forward.
- Unlike other measures in determining continued aid eligibility, this provision is not affected by the total dollar amount borrowed. Any and all periods of subsidized loan borrowing will count against the 150% time limit.
- This policy is in addition to, and not in place of, the lifetime aggregate loan limits that are currently in place.
For more information view the FACT Sheet from the U.S. Department of Education.
How and when do I start repaying my student loan?
You must start repaying your loan six months after you graduate, leave school, or drop below half time (that is, attending less than six credits in a semester). This six month period of time is called the grace period. During this time, the U.S. Department of Education will send you information about your repayment terms, and deferment options. A deferment is a legal postponement of your repayment, such as a deferment for continuing your education in another program of study or at another school.
What happens if I fail to make loan repayments after I leave school?
If you fail to make a certain number of loan repayments after you leave school (or drop below half time attendance) you may go into default. Defaulting on a student loan has very serious consequences. If you default, any one or more of the following may occur:
- Internal Revenue Service (IRS) can withhold your income tax refund, and apply it toward the loan amount you owe.
- The agency holding your loan may ask your employer to deduct payments from your paycheck.
- The national credit bureaus are notified, which affects your credit rating for a long time.
- You will lose your eligibility to receive additional federal or state aid if you decide to return to school.
Taking out a loan means taking on a lot of personal responsibility. While student loans are available, you should consider borrowing only as a last resort. Because of this, the Financial Aid Office wants you to be aware of all your options for paying for school.
What is Student Loan Default?
You are in default on most student loans if you fail to make payments for nine months. The entire loan balance becomes due once you default. If you are starting to have problems, you should work with your loan holder to postpone payments or figure out another way to get temporary relief. It is your responsibility to notify your loan holder if you move to a new address.
A deferment is a period of time during which the repayment of principal, and/or interest, of your federal student loan may be postponed temporarily. Some common deferments are in-school deferments, Military Service Deferment, Post active duty deferment or economic hardship. Contact the FInancial Aid Office or your loan servicer directly to defer your loan.
If you can't make your scheduled loan payments, but don't qualify for a deferment, your lender may be able to give you a forebearance. A forebearance allows you to temporarily stop making payments on your loan, temporarily make smaller payments, or extend the time for making payments. Some common reasons for getting a forebearance are illness, financial hardship or serving in a medical or dental internship or residency.
The interest rate is variable, capped at 8.25%. Currently, the interest rate for subsidized Stafford Loans is 3.68% for all loans approved after July 1st. The rate for unsubsidized Stafford Loans is also 3.68%. The interest for subsidized loans is paid by the federal government while you are enrolled at least half time, in a period of deferment or within the program lengths of the Direct Loan 150% rule.
Upon receipt of a loan, you can accept or reject these loans in whole or in part. Always accept subsidized loans first. The federal government withholds a small percentage of the loan award as an origination fee to defray the costs of administering the loan programs. This means that the amount of your loan applied to your student account will be slightly less than what you borrowed.