What Is a Qualified Student Loan?
Last Updated on December 2, 2022
If you are planning on taking out loans for your education, this guide will be helpful. We’ll talk about what is a qualified loan and what may not qualify as one. Getting the best education possible is something you’ve been considering for a while.
Yet, you need financial aid to pay for the tuition. A student loan can help, of course. But you must be prepared to make payments on it once you have completed your education.
If you’re planning on going to school in the coming academic semester (or next year), it may be time to find a qualified student loan.
Let’s get started with what you need to know.
Qualified Student Loans Explained
A qualified student loan is defined as student loan interest by the IRS. This term may be used in the event that a student loan can be discharged if someone were to file for bankruptcy. It’s important to consider what kind of qualified loans are available.
Federal student loans that are subsidized and unsubsidized (such as Stafford Loans) are considered qualified student loans.
Other qualified loans include the following:
- Federal Consolidated Loans
- Supplemental Loans To Students (SLS)
- Guaranteed Student Loans (formerly Staffords)
- Federally Insured Student Loans (FISL)
- Direct Consolidation Loans
- National Defense Student Loans
- National Direct Student Loans
- Perkins Loans
- Health Education Assistance Loans (HEAL)
- Health Professions Student Loans (HPSL)
- Loans For Disadvantaged Students (LDS)
- Nursing Student Loans (NSL)
- Primary Care Loans (PCL)
- Alaska Commission on Postsecondary Education (if applicable)
- Loans provided by a state college or university (if applicable)
These qualified loans will cover your tuition. These will be available to you if you are an eligible student for an academic period (such as the Fall 2023 semester). Keep in mind that loans that you receive from family members, corporations, or exempt organizations, among others, are not considered qualified.
This also includes private loan providers, loans from your 401k or related retirement plans, residency and location loans, bar study loans, and K-12 loans.
One thing to keep in mind is that your dependents can qualify for these loans as well. They must be a qualified child or relevant. Someone can be a dependent of yours even if you are a dependent of another taxpayer.
They can also be dependent if you file your taxes jointly with your spouse. Finally, you can also have a dependent qualification if you had a gross income that was equal to or more than the exemption (i.e. – $4300 in 2021).
So there can be qualifications, especially if there is a dependent of yours that is considering a college education around the same time you do.
Who May Be An Eligible Student?
Eligible students are people who have enrolled in a minimum of half-time in a degree, certification, or other educational program. If you’re taking half of the usual full workload for a student, this will be considered half-time. However, the definition may vary by educational institution.
It’s important that the standard should not be lowered than any established by the Higher Education Act of 1965.
When Can You Make Monthly Payments?
If you are paying back the loans, you’ll want to do this during the periods when it’s required to do so. If the loans are in a special status, such as forbearance or deferment, you will not be able to make the payments. If a loan is in this status, you will need to contact the loan service provider to cancel it so you can resume payment.
These student loan payments will show a balance on a monthly statement. They must be paid within 15 days after the due date. The borrower must also be employed full-time with a qualifying employer.
You also must be enrolled in an income-based repayment plan including IBR, ICR, PAYE, or REPAYE). You can also make standard repayments.
If you are making payments under such plans as graduated, alternative, or extended repayment plans, these will not count as qualified. For those reasons, you can qualify for Temporary Expanded Public Service Loan Forgiveness or TEPSLF.
What Are The Requirements For a Qualified Student Loan?
For federal student loan requirements, you’ll need to meet specific qualifications. These include but are not limited to the following:
- Be a United States citizen or a qualified non-citizen
- Have a social security number
- Demonstrate needs for educational finances
- Enrolled in an eligible degree or certificate program
- Have good grades
- Register with the Selective Service (for men 18-25 only)
- Enroll for a minimum of half-time as defined by the institution of choice
- Completed and submitted a FAFSA form
- High school diploma, GED, or a homeschool diploma (or equivalent)
When filling out your FAFSA application, you want to keep in mind the deadline. At the time of this writing, you can qualify for financial aid for the 2022-2023 year. This means you’ll need to submit the application by June 30, 2023.
Some financial aid is provided on a first-come, first-serve basis. This means you will need to complete and submit the form sooner rather than later. If your financial need is high, it may be smart to fill out the FAFSA form and submit it as soon as possible.
What Are Considered Qualified Expenses For Higher Education?
The qualified student loan will cover specific expenses that will be used for higher education.
These include but are not limited to the following:
- Room and board
- Tuition and fees
If there are other educational expenses that are defined in Section 472 of the Higher Education Act of 1965, they will be covered by the qualified student loans you have taken out.
When Should I Consider Using Qualified Loans?
You can apply for student loans before the upcoming academic year. If you are applying for one at the moment, you may qualify for financial aid for the next academic period (which may be the next academic semester).
Can I Apply For Scholarships And Grants?
Yes. You can apply for scholarships and grants. The good news is that both don’t need to be repaid. This can help you reduce the costs of your tuition and other educational expenses.
To that end, it can also help reduce the amount of how much you can take out. Thus, it may lead to you paying off a much lower balance compared to other students. Before applying for scholarships or grants, you will need to read through the requirements.
Each scholarship will have unique requirements that you must fulfill in order to qualify.
This includes but is not limited to the following:
- Your grades
- Intended major or academic program
- A specific school you may be attending
- Letters of recommendation
These are some of the common requirements. It’s important that you read the guidelines before you submit an application. If you have any questions about any scholarships or grants that might be available to you, consider speaking to your high school guidance counselor or a college or university’s financial aid office.
Consider Private Loans, if Necessary
If you still have a financial gap after receiving student loans and scholarships, you may consider private loans as another option. Remember, these are not considered to be ‘qualified student loans.’ These private loans can be issued by a financial institution.
These do not have federal protections compared to federal loans. But you may have additional benefits that federal loans won’t provide. It’s always a good idea to shop around and see which loan provider will best fit you.
Each loan provider will have different interest rates, loan amounts, and terms, and can decide if co-signers are allowed.
FAQs About Qualified Student Loans
Want to know more about qualified student loans? This FAQ guide will be helpful.
Let’s take a look at the following questions:
What Is a non-Qualified Student Loan?
A non-qualified student loan is a loan that is offered by a school that does not offer federal loans. This can be due to the fact that they are not accredited by Title IV by the Department of Education.
What Are The Four Types Of Student Loans?
The four types of student loans are direct subsidized, unsubsidized, PLUS, and consolidation loans.
What Is The Most Common Student Loan?
Stafford loans are considered to be the most common. These offer fixed interest rates so they will stay the same from the time you borrow money up until you are able to pay it off in full. Subsidized and unsubsidized loans are the two Stafford loans available to prospective students.
A qualified student loan will be helpful if you need to pay for your educational expenses, including tuition. It’s important that you be aware of your options outside of what’s being offered for loans.
Depending on your financial gap for school, you may need to apply for other loans. Scholarships and grants are also a good idea should you meet their specific requirements. Make sure that you pay off these loans during the allotted time period.
If you are unable to, you can have them deferred or request a forbearance.