FiCEP Student Loan Counseling 1 — Questions and Answers
Question 1: What is the primary difference between subsidized and unsubsidized federal Direct Loans?
- Subsidized loans have higher interest rates than unsubsidized loans
- The federal government pays interest on subsidized loans while the borrower is enrolled at least half-time (Correct answer)
- Unsubsidized loans are only available to graduate and professional students
- Subsidized loans do not require repayment if the borrower graduates
Correct answer: The federal government pays interest on subsidized loans while the borrower is enrolled at least half-time
With subsidized Direct Loans, the U.S. Department of Education pays the interest during in-school, grace, and deferment periods, reducing the total cost to the borrower.
Question 2: Which federal student loan is available to graduate students and parents of dependent undergraduates to help cover the full cost of attendance?
- Direct Subsidized Loan
- Federal Perkins Loan
- Direct PLUS Loan (Correct answer)
- Direct Unsubsidized Loan
Correct answer: Direct PLUS Loan
Direct PLUS Loans are available to graduate/professional students (Grad PLUS) and parents of dependent undergrads (Parent PLUS), and can cover up to the cost of attendance minus other financial aid.
Question 3: What is the standard repayment period for federal Direct Student Loans?
- 5 years
- 10 years (Correct answer)
- 15 years
- 20 years
Correct answer: 10 years
The Standard Repayment Plan sets fixed monthly payments over 10 years, which typically results in the least interest paid over the life of the loan.
Question 4: During an approved deferment period on federal student loans, which statement is accurate regarding interest?
- Interest accrues on all federal loan types including subsidized loans
- Interest does not accrue on subsidized loans but continues to accrue on unsubsidized loans (Correct answer)
- No interest accrues on any federal loan type during deferment
- Interest accrues only on PLUS loans during deferment
Correct answer: Interest does not accrue on subsidized loans but continues to accrue on unsubsidized loans
During deferment, the government covers interest on subsidized loans, but interest continues to accrue on unsubsidized and PLUS loans, potentially capitalizing at the end of the period.
Question 5: What is the annual Direct Loan borrowing limit for a dependent undergraduate student in their first year of college?
- $3,500
- $5,500 (Correct answer)
- $7,500
- $12,500
Correct answer: $5,500
First-year dependent undergraduates may borrow up to $5,500 per year in Direct Loans, with no more than $3,500 of that amount in subsidized loans.
Question 6: Which entity owns and services loans made through the federal Direct Loan program?
- Private commercial banks
- State higher education agencies
- The U.S. Department of Education (Correct answer)
- The Federal Reserve
Correct answer: The U.S. Department of Education
Under the Direct Loan program, the U.S. Department of Education is the lender; third-party servicers collect payments on its behalf, but the government retains ownership of the debt.
Question 7: In student loan terminology, what does 'capitalization' mean?
- Converting a student loan into a federal grant
- The addition of accrued, unpaid interest to the principal loan balance (Correct answer)
- Reducing the outstanding principal through consistent on-time payments
- Transferring a loan from one servicer to another servicer
Correct answer: The addition of accrued, unpaid interest to the principal loan balance
Capitalization occurs when unpaid interest is added to the principal balance, increasing the total amount owed and causing future interest to accrue on a larger balance.
FiCEP Student Loan Counseling 1
What is the primary difference between subsidized and unsubsidized federal Direct Loans?