FAQ – Bstar Financial Services

student loans faq

Federal loans are borrowed funds that you must repay with interest. A federal student loan allows students and their parents to borrow money to help pay for college through loan programs supported by the federal government. They have low interest rates and offer ﬂexible repayment terms, beneﬁts, and options.

Why are federal student loans a better option for paying for college?

Federal student loans offer borrowers many beneﬁts not typically found in private loans. These include low ﬁxed interest rates, income-based repayment plans, and cancellations for certain employment, and deferment (postponement) options, including deferment of loan payments when a student returns to school. Also, private loans usually require a credit check. For these reasons, students and parents should always exhaust federal student loan options before considering a private loan.

What is a PLUS loan?

PLUS loans are federal loans that graduate or professional degree students and parents of dependent undergraduate students can use to help pay education expenses. The U.S. Department of Education makes Direct PLUS Loans to eligible borrowers through schools participating in the Direct Loan Program.

Here’s a quick overview of Direct PLUS Loans:

The U.S. Department of Education is the lender.
The borrower must not have an adverse credit history.
Loans have a fixed interest rate of 7.9%.
The maximum loan amount is the student’s cost of attendance (determined by the school) minus any other financial aid received.

What is a Direct Consolidation Loan?

A federal loan made by the U.S. Department of Education that allows you to combine one or more federal student loans into one new loan. As a result of consolidation, you will only have to make one payment.

What is deferment?

A deferment is a period during which repayment of the principal and interest of your loan is temporarily delayed.

When do I begin repaying my federal student loan? (None consolidated)

You don’t have to begin repaying most federal student loans until after you leave college or drop below half-time enrollment. However, PLUS loans enter repayment once your loan is fully disbursed (paid out).

Your loan servicer or lender must provide you with a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment. Keep in mind that your loan may have a grace period.

What is a private student loan?

A private student loan is a non federal loan issued by a lender such as a bank or credit union.

What’s the difference between Direct Subsidized Loans and Direct Unsubsidized Loans?

In short, Direct Subsidized Loans have slightly better terms to help out students with financial need.

Here’s a quick overview of Direct Subsidized Loans:

Direct Subsidized Loans are available to undergraduate students with financial need.
Your school determines the amount you can borrow, which will not exceed your financial need.
For a subsidized loan, the U.S. Department of Education pays the interest:
- while you’re in school at least half-time,
- for the first six months after you leave school (referred to as a grace period*), and
- during a period of deferment (a postponement of loan payments).

What is a Direct Loan?

A federal student loan, made through the William D. Ford Federal Direct Loan Program, for which eligible students and parents borrow directly from the U.S. Department of Education at participating.

I’m a parent that took a PLUS loan to help pay for my child’s education. Can my loan ever be forgiven, canceled, or discharged?

You must repay your parent PLUS loan even if the student doesn’t complete his or her education or can’t find a job related to the program of study, or if you or the student is unhappy with the education. However, the loan may be discharged if the child for whom you borrowed is deceased or if you pass away or become totally and permanently disabled. You may be eligible to discharge some or your entire loan in any of these circumstances:

The school closed before the student completed the program.
The school forged the signature on your promissory note or falsely certified that you were eligible for aid.
The loan was falsely certified through identity theft.
The student withdrew from school but the school didn’t pay a refund that it owed. Check with the school to see how refund policies apply to federal aid at the school.
The loan was discharged in bankruptcy claim. This is not an automatic process—you must prove to the bankruptcy court that repaying the loan would cause undue hardship.

What happens if I don't make my student loan payment?

If you don’t make your student loan payment or make your payment late, your loan may eventually go into default. If you default on your student loan, that status will be reported to credit bureaus, and your credit rating and future borrowing ability will be damaged. In addition, legal action can be taken to require payment through garnishment of wages and withholding of tax refunds.

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