Let’s talk about smart debt! This week, LCC’s Financial Aid Office is sharing more information about smart debt, student loans, borrowing and repayment.

What are federal student loans?

• Based on the Free Application for Federal Student Aid (FAFSA), students who meet basic eligibility requirements at their college are offered federal student loans regardless of financial need or credit history.
• Federal student loans are funds borrowed from the U.S. government to help students finance their education, and they must be repaid (with interest).
• Federal student loans offer benefits like fixed interest rates and flexible repayment plans.
• Students can be offered subsidized and/or unsubsidized loans, depending on their financial aid package.
  • Subsidized loans are need-based, and the government pays the interest while the student is enrolled at least half-time at an eligible school.
  • Unsubsidized loans are not need-based, and the student is responsible for all interest that accrues, even while enrolled in school.

How much should I borrow?

• Make a budget! Having a budget in place before accepting student loans is extremely important in borrowing conservatively. Review your financial aid package and accept only what you need to help cover educationally related expenses while attending school.
• If possible, avoid taking on debt. If you must take on debt, be aware of interest rates and make sure payments fit into your budget.
• The LCC Financial Aid Office can discuss the differences in your specific debt options with you, along with your estimated costs for enrolling at LCC.
• LCC has partnered with WhichWay.org to provide financial education modules that assist with budgeting, setting goals, and applying for financial aid. Visit our website to learn more.

What is interest?

• Interest is additional money you pay to a lender as a cost of borrowing money. Interest is calculated as a percentage of the unpaid principal amount that you borrowed.
• For current Federal Direct loans, either subsidized or unsubsidized, the undergraduate interest rate is 6.53% for direct loans first disbursed on or after July 1, 2024, and before July 1, 2025.
• Federal Direct Loans are “daily interest” loans. This means interest accrues (adds up) every day.

How is interest calculated?

• A daily interest formula determines the amount of interest that accrues (adds up) on your loan each day. This formula multiplies your outstanding loan balance by the interest rate factor, and then multiplies by the number of days since you made your last payment.
• An example of the simple daily interest formula: Interest Amount = (Outstanding Principal Balance x Interest Rate Factor) x Number of Days Since Last Payment
• Your loan servicer will have tools to help you calculate your overall interest accrual during the set-up of your repayment plan. However, it is good to have an idea of how interest affects your overall loan balance prior to accepting funds. Here’s one helpful tool.
  • For example: If you are able to pay the interest on your loan while enrolled at least half-time in school, you can decrease the balance of your loans before you enter repayment.

What are Federal Student Loan fees?

• Most federal student loans have loan fees. These fees are a percentage of the total loan amount (gross amount). 1.057% is the current loan fee for subsidized loans and unsubsidized loans disbursed on or after Oct. 1, 2020, to Oct. 1, 2025.
• The loan fee is taken from the amount disbursed (net amount) to your student account. This means the amount disbursed is less than the amount you actually borrow. You are responsible for repaying the entire amount you borrowed and not just the amount disbursed.
• This is why, in your Banner Self-Service account, you will see a smaller amount disbursed to you than what is accepted on your award offers page.

How do I know who I pay my loan back to?

• LCC is not your loan servicer. Loan servicers are assigned to each student borrower by the federal government. There are several servicers contracted with the federal government to manage loan repayment.
• You can identify your loan servicer and their contact information by logging into studentaid.gov (with your FSA ID) to view your financial aid history.
• The loan servicer will also notify you prior to your loans going into repayment to set up an account with them and a repayment agreement.
• Loans can be transferred to other servicers throughout repayment, so it is important you review any and all communications about your student loans.

How do I set up loan repayment?

• There are many aspects to student loan repayment, such as when repayment begins, how much is due each month, and what options are available for those struggling to make payments or those seeking loan forgiveness or discharge.
• Student borrowers can apply for repayment plans and manage repayment through their loan servicer’s website or studentaid.gov, depending on the specific task.
• The best thing a student borrower can do is monitor communications from their school, the Department of Education, and the servicer holding their loan(s).
• Especially upon graduating and entering the job market, when people can be overwhelmed with to-do lists, job interviews, moving homes, etc., missing important communications about loan repayment can happen. For this reason, keeping contact information up to date with the school and loan servicer is another key factor in successful student loan borrowing and repayment.

Student loans can be a great tool when used properly. Please reach out to the Financial Aid Office at LCC with any questions or concerns. You can call 517-483-1200, select option 1 from the menu, or email us at financialaid@star.lcc.edu.