Introduction to Using Federal Student Loans for Housing
Here, we’ll discuss the basics of using federal student loans to cover your housing costs. As an online student, you’re also eligible for federal student loans. Yes, the same eligibility rules apply to on-campus and online students.
You’re not alone either in doing so. Did you know that 63.6% of students in on-campus housing use federal loans? Note that college students spend $12,990/year, on average, on room and board. Financial aid doesn’t usually cover the entirety of room and board costs. This is where federal student loans come in.
But remember that federal student loans require repayments of the principal and interest. Repayments occur after earning your degree, dropping below half-time enrollment, or leaving college. While deferments and loan forgiveness are possible, repayments are the best option.
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You must then be mindful about using your federal student loans for their intended purpose. Otherwise, it’s easy to get into the student debt trap through unwise spending. Note that college graduates incur $37,853 in average federal student loans. That’s a significant amount when the Class of 2024’s average salary is $68,516/year.
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Understanding Federal Student Loans for Online Students
Federal student loans for housing are essential for online students seeking on-campus housing. Here are the different types of federal student loans that you should know.
Direct Subsidized Loans
Undergraduate students who show financial need qualify for these loans. Be sure to file your FAFSA form on time to qualify. The loan amount depends on your college’s decision. The loan amount approved must not exceed your demonstrated financial need.
You can use these loans to cover your direct and indirect costs, including housing. But your college will first deduct tuition and fees from your loan. The excess amount will be applied to other costs, including housing fees.
The US Department of Education pays for the interest on these loans under these circumstances:
- In college, at least half-time
- First six months after leaving college
- Period of deferment or postponement of loan repayments
These are the most popular loans because of their more favorable terms and conditions.
Direct Unsubsidized Loans
This type of loan is for undergraduate and graduate students. There’s no need to demonstrate financial need, but you, the student borrower, pay the loan interest during all periods.
Again, your college determines the amount of direct unsubsidized loan. The amount is determined based on your cost of attendance and receipt of other financial aid. You can use it for direct and indirect costs, too.
Direct PLUS Loans
These are available for:
- Graduate and professional students (i.e., grad PLUS loan); and
- Parents of dependent undergraduate students (i.e., parent PLUS loan)
Borrowers must pass a credit check. You may still qualify despite an adverse credit history by meeting additional requirements.
Note that Direct PLUS Loans have higher interest rates. Borrowers can request coverage of the full cost of attendance. Other financial aid received will be considered in the final loan amount. Again, the college determines the loan amount based on the cost of attendance and other factors.
Direct Consolidation Loan
If you have many federal student loans, you can request a consolidation. These have pros and cons, so think carefully before requesting them.
Tip: Borrow less than the loan amount recommended by your school. Better yet, borrow only what you need. If you need more, you can request more funds in the future.
As previously mentioned, federal student loans can cover tuition and housing expenses. Here are a few crucial aspects to remember about it.
- Cost of attendance. Your cost of attendance is a determinant of your loan amount. Talk to your school’s financial aid officer about it.
- Timing of fund release. Federal student loans are usually released at the start of each academic term or semester. You must budget so that you’ll have enough funds for your housing costs between fund releases.
- Loan repayments. Understand the loan repayment terms and conditions. For example, you must repay your loan when you leave school, among other conditions.
When in doubt, discuss your concerns with a financial aid officer in your online college. You want to maximize your federal student loans, not miss an opportunity or waste them.
How Federal Student Loans Can Cover Housing Costs
The burden of housing costs can be too much for college students. Proof: More than 1.5 million college students in the US are homeless.
The good news is that federal student loans can ease the burden. But you must be aware of the conditions in which housing costs for online students can be covered.
Cost of attendance
The first condition is the cost of attendance (COA), which includes:
- Tuition and fees
- Room and board
- Books and supplies
- Miscellaneous expenses
- Personal expenses
- Transportation costs
Your college determines the indirect expenses based on the area’s standard cost of living. Then, your college determines your eligibility for financial aid and its amounts, including federal student loans.
You, the student, play a limited role in the COA calculation process. But you can provide updated information about your unique circumstances (e.g., single parent). You can also appeal your COA calculation through the financial aid office.
Status of enrollment
Your status of enrollment affects the amount of federal student loan you’re eligible for.
- Half-time enrollment means at least six credit hours of matriculation for undergraduates. Graduate students usually must be enrolled for 5-6 credits. Loan amounts tend to be lower.
- Full-time enrollment means at least 12 credits for undergraduates. Larger loan amounts are usual.
If you drop below half-time enrollment, you may lose your eligibility. You may also start loan repayments.
Academic progress is also a determinant of your eligibility. In general, you must maintain satisfactory academic progress, including meeting a minimum GPA.
College living expenses covered by loans include everything on the COA. You can request for the excess – after tuition and fees – to cover your housing costs.
Generally speaking, there are no restrictions on the type of housing that the loans can cover. As an online student, you have flexible options that on-campus students may not enjoy. Many colleges, for example, require freshmen students to live in on-campus housing.
You can, however, choose between these housing options and have their rent covered:
- On-campus housing, such as in a residence hall or apartment
- Off-campus housing, including an apartment or a studio
- Shared housing arrangement with other students
You may even live at home with your parents or family. This is with the assumption that you’ll contribute to the groceries and household utilities.
Think of federal student loans as a good, if last, resort to meet your housing needs. When you use these loans for their intended purpose, they become an investment of a sort. Your college degree, after all, is an investment.
Borrowing Limits for Federal Student Loans
Understanding borrowing limits for student loans is a must to plan your budget. The loan limits depend on several factors, including:
- Undergraduate or graduate student
- Dependent or independent student
- Year you’re in school (freshman, sophomore, or junior and above)
Note that the annual loan limit may be higher than the actual loan amount you receive for an academic year. Plan with this common occurrence in mind.
There are also two types of borrowing limits:
- Annual loan limit, or the total amount of unsubsidized and subsidized loans you’re eligible for in an academic year
- Aggregate loan limit, or the total amount of loans you can borrow for your undergraduate and graduate study
The current annual loan limits are:
- Dependent students (With the exception of students whose parents cannot obtain PLUS Loans)
- First-year undergraduate: $5,500, but up to $3,500 of which may be in subsidized loans.
- Second-year undergraduate: $6,500, but up to $4,500 of which may be in subsidized loans.
- Third year and beyond undergraduate: $7,500 per year, but up to $5,500 of which may be in subsidized loans.
- Independent students, including dependent undergraduate students whose parents didn’t obtain PLUS Loans
- First-year undergraduate $9,500, but up to $3,500 of which may be in subsidized loans.
- Second-year undergraduate $10,500, but up to $4,500 of which may be in subsidized loans.
- Third-year and beyond undergraduate $12,500, but up to $5,500 of this may be in subsidized loans.
- Graduate and professional students $20,500 in unsubsidized loans only
The aggregate loan limits for subsidized and unsubsidized loans are as follows.
- Dependent students: $31,000, but up to $23,000 of which be in subsidized loans.
- Independent students: $57,500 for undergraduates, but up to $23,000 of which may be in subsidized loans.
- Graduate and professional students: $138,500, but up to $65,500 of which may be in subsidized loans.
Note that the aggregate loan limits for graduate and professional students include loans for their undergraduate study.
With these borrowing limits in mind, you should pay for the essentials first. Your tuition and fees come first, followed by your living expenses. Keeping a roof over your head counts as essential.
Repayment Plans for Federal Student Loans
Understanding repayment plans for federal student loans means effective planning for the future. Using loans for online college expenses demands a strong sense of financial responsibility.
The federal government offers these repayment plans for student loans.
- Fixed payment repayment plans include:
- Standard – 10 years, fixed amount, applies to all loans
- Graduated – 10 years, lower amounts at first, then increases every two years, applies to all loans
- Extended – 25 years, fixed or graduated amounts, more than $30,000 in loans
- Income-driven repayment plans require monthly payments based on your income and family size:
- SAVE Plan – 10% of discretionary income
- PAYE Repayment Plan – 10% of discretionary income, but monthly payments must not be more than those in a Standard Repayment Plan
- IBR Plan – Either 10% or 15% of discretionary income, but monthly payments must not be more than those in a Standard Repayment Plan
- ICR Plan – Lesser between 20% of discretionary income or a 12-year repayment plan
- Consider Public Service Loan Forgiveness (PSLF) as well.
Tips for choosing the best repayment plan for your needs:
- Determine your current financial situation.
- Review the interest rates and repayment periods for each plan.
- Factor in your future income with your college degree and other factors.
- Consider working in public service or nonprofits to qualify for PSLF.
Work with a financial advisor, if possible, to determine your best repayment option. You may have overlooked crucial aspects when comparing online program costs and student loans.
Pros and Cons of Using Federal Loans for Housing
Consider these pros and cons first before taking on federal student loans for your housing needs.
Pros
- Financial flexibility in repayment terms
- Lower interest rates than private loans
- Possibility for loan consolidation or condonation
- Grace period available
Cons
- Must be repaid
- Interest accrual
- Risk for loan dependency
- Potential for limiting future eligibility financial aid for online students
When does taking out federal student loans for your housing needs make sense? When you’re in danger of being homeless or when being home-insecure will affect your studies.
Conclusion: Making Informed Decisions About Student Loans and Housing
In conclusion, be careful when taking out federal student loans for your education needs, including housing. You must first explore other options, such as scholarships and grants. The less money you have to pay in the future, the better your career can take off after graduation.
Be informed about federal student loans from primary sources, too. Check out the Federal Student Aid website first. Then, talk to your school’s financial aid officer. Consider useful articles about federal student loans.