University Student Loans: Eligibility And Application Process

University can be expensive, and many students need to take out loans to fund their education. In the US, federal and state governments, colleges, and private organisations provide college loans to students and parents. There are two main types of student loans: federal and private. Federal student loans are run by the US Department of Education and are the largest provider of student financial aid in the US, while private student loans come from private sources such as banks or financial institutions.

Federal student loans

To be eligible for federal student loans, individuals must complete a Free Application for Federal Student Aid (FAFSA) for the appropriate academic year. The amount of federal student loans that can be borrowed depends on the year of study and the student's status as a dependent or independent undergraduate. For dependent undergraduates, the limits are $5,500 per year for freshmen, $6,500 for sophomores, and $7,500 per year for juniors and seniors. Independent undergraduates can borrow up to $9,500 per year as freshmen, $10,500 as sophomores, and $12,500 per year as juniors and seniors. Graduate students are generally eligible to receive a Federal Direct Unsubsidized Loan up to $20,500 per academic year.

It is important to note that federal student loans must be repaid, and there are consequences for defaulting on these loans. Federal student loans have played a significant role in US higher education, with nearly 20 million Americans borrowing annually to help cover the costs of their education.

Private student loans

There are a variety of private student loan options, and students must research which option is best for them. Key information to understand student loans includes being aware of the annual and cumulative loan limits, interest rates, fees, and loan terms for the most popular private student loan programs.

Direct subsidized loans

Federal Direct Subsidized Loans are interest-free while you are in college, meaning that the government pays the interest on the loan while you are studying. These loans are available to undergraduate students with financial need, as determined by the cost of attendance minus the expected family contribution and other financial aid (such as grants or scholarships). The amount you can borrow increases for each year of school you complete, and there is no interest charged during in-school, deferment, and grace periods.

To be eligible for a Direct Subsidized Loan, you must be a U.S. citizen, national, or permanent resident, be enrolled at least half-time, not have defaulted or owe a refund to any previous aid program, and maintain satisfactory academic progress. The maximum amount you can borrow each academic year depends on your grade level and dependency status. For example, the annual loan limit for a first-year dependent undergraduate student is $5,500, with a lifetime borrowing limit of $31,000.

It is important to note that there is a limit on the maximum period of time you can receive Direct Subsidized Loans. This limit is 150% of the published length of your program, and it applies to first-time borrowers on or after July 1, 2013, and before July 1, 2021.

Compared to other types of loans, such as private loans, Federal Direct Subsidized Loans often provide lower interest rates and more flexible terms. They also do not require a credit check, which makes them a good choice for students who may not have established credit yet.

Direct unsubsidized loans

Eligibility

Most students who qualify for federal aid are eligible to take out a Direct Unsubsidized Loan. Your family's financial circumstances do not matter, and even wealthy families can qualify. To be eligible, you must:

• Be a U.S. citizen, national, or eligible non-citizen
• Have received a high school diploma or equivalent
• Be enrolled at least half-time in an eligible degree or certificate program
• Not be in default on any existing federal student loans
• Meet general eligibility requirements for federal student aid

Interest and Fees

The interest rates on Direct Unsubsidized Loans are fixed and do not change over the life of the loan. The interest on these loans starts to accrue as soon as the loan is disbursed. The current interest rates are:

• 6.53% for undergraduate students for the 2024-2025 academic year
• 8.08% for graduate and professional students for the 2024-2025 academic year

The current fee on Direct Loans (as of Oct 1, 2024 - Sept 30, 2025) is 1.057%. Fees are deducted from each loan disbursement, and you can ask your college financial aid office to increase the loan amount to cover these fees.

Loan Limits

The amount you can borrow from the Direct Loans program is subject to annual and aggregate loan limits:

• Annual limits specify how much you can borrow each academic year
• Aggregate limits specify the total amount you can borrow through the loan program

Undergraduate students can borrow up to $5,500 in the first year (varies for dependent/independent status) and up to $7,500 per year afterward. Loan limits are also capped at the college's annual cost of attendance, which includes tuition, room and board, books and supplies, transportation, and miscellaneous personal expenses.

Applying for a Direct Unsubsidized Loan

To apply for a Direct Unsubsidized Loan, you must first complete the Free Application for Federal Student Aid (FAFSA). Once you receive your financial aid award letter from your school's financial aid office, contact them to accept the financial aid, including any student loans. You will then need to sign any associated paperwork, such as the Master Promissory Note (MPN).

Repayment Options

• Revised Pay-As-You-Earn (REPAYE) Repayment
• Pay-As-You-Earn (PAYE) Repayment
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
• Income-Sensitive Repayment (ISR)

Direct PLUS loans

The interest rate for federal direct PLUS loans is currently 9.08% and there is also an origination fee of 4.228%, which is deducted from each loan disbursement. PLUS loans require a credit check and have fewer repayment options than other types of federal loans.

The process of applying for a PLUS loan involves an additional step beyond submitting the Free Application for Federal Student Aid (FAFSA). Borrowers must submit the FAFSA first and then apply for either a parent PLUS loan or a graduate PLUS loan. For parent PLUS loans, a deferment can be requested while the student is in school and for the six months after graduation. Otherwise, the borrower will be required to make payments within 60 days of receiving the last loan disbursement.

PLUS loans offer several repayment options, including standard repayment plans, graduated repayment, extended repayment, and income-driven repayment plans such as Revised Pay-As-You-Earn (REPAYE) and Income-Contingent Repayment (ICR). Borrowers can also request deferment or forbearance in certain situations, such as economic hardship or active military duty.

In summary, Direct PLUS loans are a viable option for parents and graduate students who need additional funding for college. However, it is important to carefully consider the interest rates, fees, and repayment options before committing to any student loan.

Frequently asked questions