There are two types of student loans: federal loans, which are funded by the federal government, and private loans, which are funded by private entities such as banks, credit unions, or other lending institutions. Learn more about the differences between federal and private student loans.
The federal government offers two types of direct loans to students, subsidized and unsubsidized. You may also hear these loans referred to as Stafford Loans.
Direct Subsidized Loans
Direct subsidized loans are available to undergraduate students with financial need not covered by grants and scholarships. On subsidized loans, the federal government pays your loan interest while you are in school. Students may apply for direct loans only after they have been reviewed for grant eligibility.
- For 2016-2017 academic year, the interest rate is fixed at 3.76 percent (capped at 8.25 percent). The interest rate changes annually on July 1.
- Accumulated interest while you are in school or while your loan is in deferment is paid by the federal government.
- Repayment begins six months after you graduate or drop below half time enrollment. Interest starts to accumulate when repayment begins.
- There is a limit on the maximum period of time (measured in academic years) that you can receive direct subsidized loans. In general, you may not receive direct subsidized loans for more than 150% of the published length of your program. This means that for a two-year associate's degree program, the maximum period of time you can borrow subsidized loans is three years.
Direct Unsubsidized Loans
You do not need to demonstrate financial need to be eligible for unsubsidized federal loans. With these loans, you pay all the interest on your loan, although payments are deferred until after graduation.
- The interest rate for 2016-2017 is fixed at 3.76 percent. The interest rate changes annually on July 1.
- Loans encumbered prior to July 1, 2006, have a variable interest rate.
- You may pay the accumulated interest on unsubsidized loans or it will capitalize.
- Interest may be paid while your loan is in deferment or once you begin repayment.
Important Information for Direct Loan Borrowers
There are annual limits on the amount of subsidized and unsubsidized direct loans you may receive each year. Learn more about the annual borrowing limits.
Effective October 1, 2016, the required origination fee increases from 1.068 percent to 1.069 percent for both subsidized and unsubsidized loans. The required origination fee increases for Direct PLUS Loans at a rate of 4.276 percent. These changes affect loan borrowers whose first loan disbursement occurs after October 1, 2016.
Entrance Counseling and Financial Literacy Sessions
If you are a first-time borrower taking out a direct loan, you must complete Direct Loan Entrance Counseling before submitting a Loan Processing Form. In addition, you may be required to attend a loan information session. At this time, you may complete the electronic loan entrance counseling session and the Master Promissory Note.
All first-time student loan borrowers must also complete a financial literacy session with pointers on general financial aid, including loan information and tips on managing your money. The financial literacy sessions last 90 minutes. Sign up for a financial literacy session by following these steps:
- Go to signupgenius.com.
- Select a campus.
- Select an available time slot and click on Sign Up.
- Enter your name and your email address.
Bring an ink pen and your MC Identification Card to the session with you.
Canceling a Loan
If you have been approved to borrow a federal direct loan and you wish to cancel the loan, you may decline the loan online at MyMC under the financial aid tab. If you make an error, use the Loan Change Form, available at the financial aid office. Officially canceling the loan is not a requirement. (In order to process any loan at Montgomery College, the loan application form must be signed by the student. Without the completed loan form and student eligibility, the loan for first time borrowers will not be posted to the student account.
After you transfer or drop below six college credits, you must complete Loan Exit Counseling at studentloans.gov. Remember to complete and return the Loan Exit Reference Document for Montgomery College, Title IV school code 006911.
Parent PLUS Loans
PLUS loans enable parents to borrow to pay for their children's education.
To apply for a PLUS loan, a FAFSA must be on file. This loan is available to parents of dependent students to borrow on behalf of their child. For the academic year (fall/spring or spring only) a PLUS Loan Request Form is required by Montgomery College. Forms are available online and also at any MC campus financial aid office beginning in July of each academic year. The interest rate for PLUS loans is fixed at 6.31 percent (capped at 10.5 percent). The interest rate changes July 1 annually. Loans prior to 2013-2014 are at a variable interest rate.
This loan is based on credit-worthiness and payment starts 60 days after the full disbursement of the loan. The parent may borrow up to the student's cost of education, excluding any awarded financial aid.
Federal Perkins Loans
As of fall 2015, Montgomery College no longer participates in the Federal Perkins Loan program. If you received a Perkins Loan while attending MC your accounts are now being serviced by the U.S. Department of Education. All questions regarding the Perkins Loan must be directed to ECSI Federal Perkins Loan Service at 866-313-3797.
Private student loans are unsecured loans made by private lending institutions such as banks or credit unions. Interest rates and origination fees, as well as repayment, forbearance, and deferment options, vary based on the lender. Private loans are based on the borrower's credit history; some lenders require a cosigner. Students and/or parents may borrow up to the student's yearly cost of attendance minus any other financial aid the student is receiving, including other student and parent loans.
A private loan usually costs more than the federal loans, and the expenses you pay may vary widely between different lenders' programs. Do not forget to log in to your MyMC portal to get your cost of attendance and other necessary information to complete the self-certification form to submit to your private loan lender.
Is a private loan a wise decision for you?
Think carefully before going deeply into debt. There may be other opportunities for you. You can discuss these options and your specific situation with one of our financial aid representatives. There is also a discussion available at finaid.org.
For education loans, you almost always receive better loan conditions and lower rates with a Subsidized Direct, Unsubsidized Direct, or PLUS loan. Before proceeding with a private loan, check your eligibility for these options first.
When do families consider a private loan?
- If you or your parents do not meet federal eligibility requirements
- If you have received all the aid you are eligible for, including federal loans, and still have additional cost
- If you have outstanding charges and it is too late to obtain federal aid for a previous period of enrollment
Student Loan Repayment
Both federal and private loans are generally repaid after attending college. Interest rates for educational loans may be lower than commercial interest rates. There are special loans for parents and independent students who are not eligible for grants.
When you accept the money from the loan, you are agreeing to repay the loan. If you fail to repay the loan under the terms of the promissory note, you will have defaulted on your loan. Defaulting on your student loan could damage your credit rating for a very long time.
The federal government works with student loan borrowers to informally resolve loan disputes and problems with federal loans. For more information regarding the options visit the federal web site for disputes.
MC Tuition Installment Plan
Before applying for a a private loan, you may want to consider using the MC Tuition Installment Plan (MC TIP). You can view and enroll for MC TIP from inside MC Bill Payment by logging into MyMC and going to Pay My Balance/View My Bill.