Loans Student Loans 1 — Questions and Answers
Question 1: What is the main difference between subsidized and unsubsidized federal student loans?
- Subsidized loans have higher limits
- The government pays interest on subsidized loans while the student is in school (Correct answer)
- Unsubsidized loans are only for graduate students
- Subsidized loans do not require repayment
Correct answer: The government pays interest on subsidized loans while the student is in school
With subsidized loans, the US Department of Education pays the interest while the borrower is enrolled at least half-time, whereas interest accrues immediately on unsubsidized loans.
Question 2: Which federal form must students complete to apply for federal student aid, including loans?
- CSS Profile
- FAFSA (Correct answer)
- IRS Form 1040
- SAR Application
Correct answer: FAFSA
The Free Application for Federal Student Aid (FAFSA) is required to determine eligibility for federal grants, work-study, and student loans.
Question 3: What is the standard repayment plan term for federal Direct Loans?
- 5 years
- 10 years (Correct answer)
- 20 years
- 30 years
Correct answer: 10 years
The standard repayment plan for federal Direct Loans requires fixed monthly payments over a 10-year period.
Question 4: Which type of student loan is based primarily on financial need as determined by the FAFSA?
- Direct PLUS Loan
- Direct Unsubsidized Loan
- Private student loan
- Direct Subsidized Loan (Correct answer)
Correct answer: Direct Subsidized Loan
Direct Subsidized Loans are awarded based on demonstrated financial need calculated through the FAFSA.
Question 5: What does 'loan capitalization' mean in the context of student loans?
- Converting a private loan to a federal loan
- Adding unpaid accrued interest to the principal balance (Correct answer)
- Paying off the loan in a lump sum
- Reducing the interest rate after 12 on-time payments
Correct answer: Adding unpaid accrued interest to the principal balance
Capitalization occurs when accrued unpaid interest is added to the principal balance, increasing the total amount on which future interest is charged.
Question 6: Under which federal income-driven repayment plan are payments capped at 10% of discretionary income for new borrowers?
- Graduated Repayment Plan
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE) (Correct answer)
- Extended Repayment Plan
Correct answer: Pay As You Earn (PAYE)
Pay As You Earn (PAYE) caps monthly student loan payments at 10% of the borrower's discretionary income for eligible new borrowers.
Loans Student Loans 1
What is the main difference between subsidized and unsubsidized federal student loans?