By Anna Hall, ISONN editor
As you begin to look at colleges and decide what school is the best choice for you there are several things you should research first. One of the most important things to consider when examining your options is finances. Many college students need financial aid, and this series will help you start thinking about the financial decisions that you will soon encounter.
Your first step in applying for any type of financial aid will be to fill out the Free Application for Federal Student Aid (FAFSA). This form is available online and the information you provide will be given to whichever schools you list on the FAFSA form, and financial need will then be assessed based on this information.
One option you may be eligible for financial aid is to take out a Direct Loan. A Direct Loan is a low interest loan for students and parents. The lender of a Direct Loan is the United States Department of Education.
You may be awarded more than one type of loan, and it is important to understand what each loan entails before you decide to accept any or all loans.
Types of Direct Loans…..
There are several types of Direct Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Consolidation Loans.
*NOTE* a “grace period” is a six month period after you complete school in which you are not required to make any payments on your loan
- Direct Subsidized Loans are based on financial need. Eligibility for a Direct Subsidized Loan is based on federal regulations. If you accept a Direct Subsidized Loan, you will not be charged interest during the time you are enrolled in school if you are at least a half time student. No interest will be charged to you during grace periods or deferment periods.
- Unsubsidized Loans are NOT based on financial need. If you accept a Direct Unsubsidized Loan, you will be charged interest during your time as a student as well as during grace and deferment periods.
- Direct PLUS Loans are a type of Unsubsidized Loans for parents of financially dependent students and for graduate or professional students. Interest is charged during grace and deferment periods and also during the student’s enrollment in the school.
- Consolidation Loans is an option where student loans may be combined.
Things you should consider…
- If you accept a Direct Loan you will not have to make any payments on your loan until you drop below half time status.
- Each school will tell you how much you may borrow and what types of loans you are eligible for.
- After you fill out the FAFSA form and it is reviewed, your school will notify you of the financial awards being offered to you. You may choose to decline an award or request a loan for a lower amount. Your award letter should tell you how to do this.
- If you choose to accept any or all of your award offers, you will have to pay back the entire loan amount plus interest. There are several Payment plan options to help you do this.
- There is a maximum amount per loan you will be awarded based on grade level and financial status (are you independent or dependent).
- The actual amount that you may accept is determined by your school and this amount may be lower than the maximum amount determined by the government.
If you decide to accept a loan.….
Before you accept a Direct Loan you must sign a Master Promissory Note (MPN), a legal document stating that you promise to pay back the loan amount and any accrued interest/fees to the department.
You may sign your MPN online at www.StudentLoans.gov
If you choose to sign your MPN online, you will need your PIN number that is issued by the Department of Education (you should have this in your FAFSA information). If you do not have one, you may request one on the official PIN website.
Parents borrowing on behalf of their children must request a PIN number when accepting a PLUS Loan.
In most cases you may accept additional loans under the same MPN for up to 10 years unless your school does not allow it.
Direct PLUS Loans require a separate MPN.
If you accept an award offer that exceeds the amount of your tuition, your school with give you a check with the remaining amount of money. This money should be used for school-related expenses only (housing, groceries, books, etc.)
There are several repayment plan options when the time comes to repay your loan: Standard Repayment Plan, Extended Repayment Plan, Graduated Repayment Plan, Income Contingent Repayment Plan and Income-Based Repayment Plan
- If you choose the Standard repayment plan you will pay a fixed amount each month of at least $50. Under this payment plan you will have 10 years to repay your loan in full.
- You may also opt for an Extended repayment plan if you have more than $30,000 in loan debt. You will only be eligible for this payment plan if you have no outstanding Direct Loans as of Oct. 7, 1998. Under this plan you will have 25 years to pay back the loan in full. You may do this in one of two ways: fixed payment option or graduated payment option.
- Fixed payment option: If you choose this option you will have a fixed payment amount due each month,
- Graduated payment option: Under this payment option your monthly payments will start low as you begin your repaying period and increase every two years
- Another option when choosing a payment plans for your loan is the Graduated Repayment Plan. This plan gives you up to 10 years to pay back the loan. Each payment will never be less than the amount of interest accrued during payments.
- An Income Contingent Repayment Plan is one in which each payment you make is based on your annual income, family size and total amount of your Direct Loan.
- If you choose an Income-Based Repayment Plan you will make payments based on the income you received during periods of partial financial hardship. Under this payment plan your monthly payments may be adjusted annually. This plan allows you to take more than 10 years to pay back the loan and has the possibility of cancellation of any leftover fees.
More information on Direct Loans can be found at www.StudentLoans.gov