Federal Student Loans
Federal student loans summary:
Federal student loans are government loans that eligible borrowers can use to pay for college.
The government offers programs to help eligible students have their loans canceled.
If you fall behind on payments, it's possible to rehabilitate, consolidate, or resolve your student loan debt .
Federal student loans definition and meaning
Federal student loans are loans issued by the federal government to help students pay for college. The Education Department oversees federal student loan programs. Congress sets loan interest rates and proposes student loan legislation.
The government offers several programs to help borrowers get their loans canceled, forgiven, or discharged. It's also possible, though difficult, to settle student loan debt or discharge it in bankruptcy.
Key concept: Federal student loans are government loans that help students pay for school.
Key features of federal student loans
College degrees don't come cheap, and many students turn to loans to help cover the cost. Federal student loans let you borrow money from the government and pay it back at low, fixed interest rates.
Federal student loans are notable because they offer a range of benefits to borrowers. Here's the rundown.
Except for parent loans, you don't need good credit to qualify.
You can use federal student loans to pay for undergraduate and graduate programs.
Most federal loans offer a six-month grace period after you leave school before payments begin.
Deferment and forbearance programs let you take a temporary break from payments if you have a financial hardship.
Interest rates are low and fixed, which means they don't change over the life of the loan.
If you have multiple federal student loans, you can consolidate them into a single federal student loan to streamline monthly payments. (Federal student loan consolidation doesn’t lower your interest rate or reduce your debt.)
You can choose from multiple repayment plans, including income-driven repayment (IDR).
Eligible students can qualify for loan forgiveness, cancelation, or discharge.
When you get federal student loans, you make payments to a loan servicer. This is a company authorized by the Education Department to send you bills and collect payments.
Applying for federal student loans
You'll need to complete the Free Application for Federal Student Aid (FAFSA) to apply for federal student loans. You can use the FAFSA to apply for:
Direct subsidized loans
Direct unsubsidized loans
Direct PLUS loans
Direct consolidation loans
Direct subsidized and unsubsidized loans are for undergraduate students. The direct PLUS loan program makes loans to graduate/professional students and parents of undergraduates. Consolidation loans let you combine multiple existing federal loans into one.
Federal student loans and debt relief
Can you get rid of your federal student loans without paying in full? Possibly, though it's not exactly easy to do. If you're interested in ways to manage student loan debt it helps to know what options you might have.
Debt relief means solutions or strategies to manage or reduce debt. The federal government offers a few avenues for people who need help with student loans.
Income-driven repayment (IDR) is a way to calculate your required monthly payments based on your monthly income and household size. A lower income could mean a lower payment.
IDR plans can wipe out the rest of your student loan balance after 20 or 25 years of qualifying payments.
Public service loan forgiveness (PSLF) cancels some of your debt if you work in a public service field and make 120 qualifying payments.
Teacher loan forgiveness is available for teachers who work in a qualifying school for five consecutive years.
You might be eligible for student loan discharge if you become totally and permanently disabled, your school misled you, or you're a victim of forgery/fraud.
You could get federal student loans discharged in bankruptcy , but you'll have to prove that you have an undue hardship that makes it impossible to pay and that your situation isn't likely to change.
Can you settle federal student loans? Possibly, through a process called settlement and compromise. You might consider this option if you're in default. Default means you haven't made a payment in 270 days or more. At this point, your student loans may be assigned to a debt collector.
The Education Department can accept compromises, but it doesn't have to. And you'll still have to pay something to your loans. You may need to try consolidation or loan rehabilitation before you can be eligible for settlement. Rehabilitation lets you get caught up on payments to bring your loans current.
If you're interested in federal student loan forgiveness there are some potential tax consequences to learn about. Loans forgiven through PSLF aren't considered income for federal tax purposes, but your state could tax you.
When you settle student loans, the forgiven amount could be taxable unless you're insolvent . Insolvency means you have more debts than assets. Assets are things of value like a home, car, or bank account. Talk to a qualified tax professional about your situation.
Federal Student Loans FAQs
What happens if I can't make my debt payments?
If you can't pay credit cards, student loans, or other debts on time, creditors or lenders can report late payments to the credit bureaus. Late payments usually have a negative impact on your credit profile. Eventually, debts might get sold to a collection agency.
It's a good idea to contact your creditors or have a conversation with a debt consultant if you think you're in danger of missing a payment. Creditors may offer financial hardship programs to give you temporary relief. A debt consultant could help you weigh other options to manage your debt.
What are the main causes of insolvency?
The top causes of insolvency leading to bankruptcy include financial hardships such as major medical expenses, job loss, an unaffordable mortgage, overspending, and divorce.
How do you get help with debt?
If you need help with debt, it may be worth talking to a financial professional. A Debt Consultant can look at your budget and debts and tell you what options might be most suitable for your situation. You can find one here. If you want help learning to manage your debt and your payments, you could talk to a nonprofit credit counselor . Look for one certified by the NFCC or the AFCPE. Counseling agencies can provide free or low-cost help with getting a grip on your finances.
Related Articles
Some student loan programs offer flexibility that makes repayment more affordable. Learn more about how to manage your student loan debt.
If you can’t afford your student loans, you might qualify for a lower payment that helps make your debts more manageable. Here’s what to do.
Student loans with low rates usually land in the "good debt" category. It still pays to learn how student loan forgiveness could help you get rid of them.
Some student loan programs offer flexibility that makes repayment more affordable. Learn more about how to manage your student loan debt.
If you can’t afford your student loans, you might qualify for a lower payment that helps make your debts more manageable. Here’s what to do.
Student loans with low rates usually land in the "good debt" category. It still pays to learn how student loan forgiveness could help you get rid of them.