All About Student Loans

Borrow With Care 

Student loans are the least attractive form of financial aid, but they can provide the last piece in the puzzle when you’re gathering money for college.

Student loans are less appealing because you have to pay back the money with interest. That’s different than grants and scholarships – which you don’t have to pay back – and work-study, where you earn the money through a job.

The federal government and private lenders like banks and credit unions offer student loans. If you want a private loan you have to arrange it yourself, so we’ll stick here with federal student loans. They typically offer lower interest rates and more flexible payment terms than private loans. A federal student loan may be part of your financial aid award from OCC. You’re automatically considered for one when you submit your Free Application for Federal Student Aid.

The Basics of Federal Student Loans

Federal student loans have one huge advantage over other types of financial aid: Virtually everyone qualifies for some type of loan, no matter their financial circumstances. To be eligible, you must be registered for at least six credits in an eligible program, make Satisfactory Academic Progress, and meet a few other eligibility requirements.

Some key features of federal loans include:

  • If you’re awarded a federal student loan, you must sign a legal contract called a promissory note and undergo entrance counseling to learn about your obligations.
  • You don’t have to start paying back federal loans until six months after you graduate, drop below six credits in a semester, or leave school.
  • You can choose from a variety of repayment plans, including income-based plans.
  • They have fixed interest rates that are usually lower than those available with private loans.
  • You generally have 10 to 25 years to pay off the loans.

While these features are appealing, they come with a big caution: Only take out a loan for the amount of money you absolutely need for school. Why? Because you have to pay the money back with interest – even if you don’t graduate. This can be a big drain on your financial well-being after you finish school. If your financial aid award from OCC includes a loan with more money than you really need, you can accept a lower amount.

Types of Federal Student Loans

The federal government provides four kinds of student loans:

  • Direct Subsidized Loans: These loans are for students who demonstrate financial need on their Free Application for Federal Student Aid. The federal government pays the interest while you’re in school.
  • Direct Unsubsidized Loans: You don’t have to demonstrate financial need to qualify for these loans, but you pay all the interest charges. You can choose to defer those interest charges while you’re in school, but the accumulated interest is added to your loan’s principal.
  • Direct Parent PLUS Loans: Parents can apply for these loans to help pay for their child’s college education. This is the only type of loan where the government checks your credit. If you have an adverse credit history, you must meet additional requirements to qualify for a loan.
  • Direct Consolidation Loans: Student or parent borrowers can combine all their loans into one with these loans.

Avoid Loan Scams

If you take out a federal student loan, companies may contact you promising to reduce your debt for a fee. They may claim to have “insider information” to lower or even wipe out your debt – but you must act now. Don’t fall for this.

“You don’t have to pay for help with your student loans,” says the Federal Trade Commission. “There’s nothing a company can do for you that you cannot do yourself for free.” Some companies even use the U.S. Department of Education seal, but this doesn’t mean they’re legit. “Scammers use official-looking names and logos and say they have special access to certain federal programs,” says the FTC. “They don’t.”

The Department of Education does hire private companies to handle the billing and other services on your federal student loans. You can check a list of trusted companies that work with the department if you’re not sure about a company that contacts you.

For more information about how to spot scams, see Avoiding Student Aid Scams from the Department of Education.

If you have questions about your loan, the best source of help is the company that services it. They’ll work with you to change your repayment plan, consolidate your loans, lower your monthly payment, postpone payments while you’re going to school or are unemployed, or see if you qualify for any loan forgiveness programs. 

How to Learn More

Publications from the U.S. Department of Education offer a wealth of information about federal student loans: