The Pros and Cons of Federal Student Loans

May 2, 2022

3

min read

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ducation and money are both strongly intertwined with one another. It would be beneficial to have an education to earn money, but money is also required to afford the education.

But, education can be expensive. The average tuition fee is at least thousands of dollars, and there is no way everyone can afford the education-related expenses.

While scholarships do help students, not everyone is eligible to get them. In many cases, student loans are the only option for the student to fund these expenses.

The federal government also provides student loans known as the federal student loans to facilitate college students.

What Are Federal Student Loans?

Federal student loans are the loans offered by the federal government to support the students and their parents to help pay for the college fees.

These loans are administered by the US Department of Education and tend to have lower interest rates and more flexible repayment options.

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Federal loans are cheaper than the private loans available since the government offers them. You can apply for federal student loans through Federal Student Aid.

You need to fill out the FAFSA form, review your aid offer, and get your aid. After you get the student loan, you can find an affordable plan to repay the loan

Types Of The Federal Student Loans.

Direct Subsidized Student Loans

Direct subsidized student loans are provided to underprivileged students who cannot afford the education. The federal government provides the loan to complete their studies without charging any interest.

The students do not have to pay the interest until they graduate. This helps ease the financial burden and allows the students to focus on their studies entirely.

Once they graduate, they will be given a six-month grace period, after which they need to pay the interest and principal amount.

Direct Unsubsidized Student Loans

Unlike direct subsidized loans, the interest starts accruing as soon as the direct unsubsidized student loans are provided. The students have to pay for the interest and the principal amount regardless of their financial situation.

However, the loan's interest rate is generally low and is fixed-rate with flexible repayment plans. There is no penalty for prepaying the loan, and no credit check is required to borrow the loan.

But, the direct unsubsidized student loans have strict loan limits and need to file a new form every year to maintain the loan eligibility.

Direct Plus Loan

Direct plus loans are not for the students but for the parents of the college students. These loans provide several features such as low-interest rates, fixed rates of interest, and flexible repayment options.

It also has a feature of deferring payment until the student graduates. However, the parents need to go through the credit check to approve the loan. Also, they need to apply each year and are legally responsible for paying off the loan.

Debt Consolidation Loan

Debt consolidation student loans are the loans provided by the federal government to consolidate your student loans into one single loan.

It combines several student loans into one single loan. The interest rates are fixed and provide you with flexible repayment options.

You can only refinance the federal loans under the government program. If you consolidate your federal loan with private lenders, you will lose otherwise the benefits you would receive.

Pros Of Federal Student Loan

No credit history and credit check are required.
No co-signer is required.
Fixed interest rate
Low-interest rates and flexible repayment option
Deferred interest and payments
Provision of repayment grace period
Availability of debt consolidation
Debt discharge in case of death of the borrower

Cons Of Federal Student Loan

No subsidized federal direct loans for graduate students.
Restriction in the loan limit
If you default on the loan, the government can garnish your salary.
The federal loans might not be enough to cover college tuition fees.
It may have origination fees.

Conclusion

Thus, federal loans help students pay their tuition fees at comparatively low-interest rates and flexible repayment. The loans have several benefits for the financially needy students and help them attain their future goals and dreams.

However, like the two sides of the coin, federal loans also come with some drawbacks, including limitations for the borrowed loan and extremity when you default.