May 28, 2021

What Is a Federal Student Loan?

Chipper Help

A federal student loan is an educational loan that’s backed by the federal government and is available at every educational level to support students in need of financial assistance. In this article, we uncover how federal loans work, along with the various types of loans available and the benefits they provide when you need extra help to cover your education.

What Are Federal Student Loans?

Federal loans can be used for college, graduate school, or career school which is made through the U.S. government — the U.S. Department of Education to be more specific. Conditions (such as when payments need to start) and terms (like the interest rate) are dictated by federal law. In general, these terms will make getting a federal student loan an advantage, compared to a private student loan made through a bank or some other private organization.

The Types of Federal Student Loans

There are currently four different types of loans made available by the federal student loan program through the U.S. Department of Education. These are:

  • Direct Consolidation Loans: These loans combine several federal student loans into one, leaving you with just a single loan servicer.
  • Direct Subsidized Loans: These loans are available for eligible undergraduate students who have a financial need. Through a direct subsidized loan, the government may also pay your loan’s interest during a certain period (such as if you’re enrolled in school on a half-time basis.)
  • Direct Unsubsidized Loans: This federal student loan is offered to professional, graduate, and undergraduate students who have or don’t have a financial need.
  • Direct PLUS Loans: This loan is available to professional or graduate students, and even parents with undergraduate students dependent on them. The direct plus loan isn’t based on financial need, but a credit check will be performed.

For all of the federal student loans above, the U.S. Department of Education will act as your lender. However, you will be assigned a loan servicer — a company that provides your loan and collects your payments for the loan.

How Much Can I Borrow in Federal Student Loans?

The answer to this question will depend on whether you’re a graduate, undergraduate, or professional student, or the parent of a student. Here’s a guide that may help you determine how much you might be able to borrow.

  • Direct Subsidized Loans and Direct Unsubsidized Loans: For undergraduate students, the maximum amount that can be borrowed every year under these loans will range between $5,500 to $12,500. However, this will depend on your school year as well as the status of your dependency.
  • Direct Unsubsidized Loans: For professional or graduate students, you can borrow as much as $20,500 every year.
  • Direct PLUS Loan: These can also be used for your remaining college costs that aren’t covered by any other financial aid — which is determined by your school.
  • Parent PLUS Loan: Lastly, if you’re the parent of a dependent undergraduate student, you may apply for a Direct PLUS Loan (also called Parent PLUS) to cover the remaining costs of your child’s studies. Keep in mind that these shouldn’t be covered by any other financial aid, and will be determined by your child’s school.

Why Should I Take Out Federal Student Loans?

For many students, taking out a federal student loan is an investment for their future. While you shouldn’t be afraid to apply for a federal student loan, you will need to be smart about it. A federal student loan offers plenty of benefits compared to other options when you’re looking for ways to pay for college such as:

  • Interest rates are fixed and are usually lower compared to private loans; they’re also much lower compared to interests on a credit card.
  • You won’t have to go through a credit check or need a cosigner for most federal student loans.
  • There’s no need to repay your federal student loans until you drop below part-time schooling or after you leave college.
  • If you have demonstrated your need for financial assistance, the government can pay the interest on some loan types during your time in school and after school.
  • If you work in a certain job, you might be eligible to get a portion of your federal student loan forgiven should you meet certain conditions.
  • Federal student loans also offer flexible payment options and plans to extend your loan repayments if you can’t pay just yet.

Conclusion

A few key takeaways that you need to remember when considering to take out a federal student loan are as follows:

  • Federal student loans are educational loans made by the government.
  • There are currently four types of federal student loans, known as Direct Consolidation Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Each of these federal loans has been designed for different financial situations and educational levels.
  • Keep in mind that while student loans provide advantages such as flexible repayment plans and fixed interest rates, the government may limit the amount you can borrow.
  • Chipper can help you manage your Federal student loans by finding the best repayment plan for you or find out if you're eligible for a Student Loan Forgiveness program.
  • If you're interested in seeing what potential paths you're currently eligible for, get started here linking your loans so we can generate your various options today!

References:

https://www.thebalance.com/federal-student-loans-what-are-they-and-how-they-work-4780218

https://www.salliemae.com/college-planning/student-loans-and-borrowing/compare-federal-vs-private-loans/federal-student-loans/#:~:text=Federal student loans%2C also known,money to cover college expenses.

https://www.studentloanborrowerassistance.org/start-here/what-type-of-loan-do-i-have/

https://studentaid.gov/understand-aid/types/loans

https://studentaid.gov/understand-aid/types/loans/federal-vs-private

https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp

https://www.salliemae.com/college-planning/student-loans-and-borrowing/compare-federal-vs-private-loans/federal-student-loans/

Use Chipper for Lower Payments

Chipper can help you find a student loan repayment plan that actually fits into your budget. You simply fill out your information and link your student loan account for us to generate your options in seconds. We help the average student loan borrower save over $300 a month off their student loan monthly payment. Lowering your monthly payment plan can game changing for your personal finance and can be done in minutes! Sign up for Chipper today to get on track with your student loans.

Use Chipper for The Best Path to Forgiveness

Finding your path to student loan forgiveness is easier than ever before. Chipper helps members find better Income-Driven Repayment (IDR) plans every day. Once enrolled in an eligible repayment plan, we can help you explore your forgiveness options and understand your path towards forgiveness. Sign up with Chipper today and get on track with your student loans.

Use Chipper for Round-Ups

Paying off your student loans doesn’t have to be a long and painful journey. Round-Ups are a way to directly pay off your loans with your everyday spending! By tracking your linked spending account(s), we will calculate the rounded up amount from each transaction in a week (IE spending $4.28 would add $0.72 to the weekly amount). We then initiate a payment towards your student loan for the weekly amount. Get chipping away on your student loans with Chipper today.

Use Chipper for Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program was created to provide relief to borrowers aiding the public sector. Unfortunately, 30% of applicants are denied due to incorrect paperwork. We can help! Chipper was created to solve this issue by assisting borrowers in understanding their options as well as allowing forgiveness eligible users enroll into the best forgiveness program available. Sign up for Chipper today to see your student loan forgiveness options and get the forgiveness you deserve.

Use Chipper for Teacher Loan Forgiveness (TLF)

The Teacher Loan Forgiveness (TLF) program was created to enable teachers working in Title 1 schools to receive student loan forgiveness of up to $17,500 (depending on their teaching subject). Chipper has helped teachers from all over the country qualify for TLF program and can help you get the forgiveness you deserve today. Find out if you qualify for forgiveness in minutes with our employer search tool.

See How Much You Can Save with Round-Ups

Don't worry.
Be Chipper.
Get Started