Federal Student Loans
Federal student loans are often necessary when it comes to financing an education. Students and parents have the
option of using federal student loans or personal loans. Federal student loans are funded and/or insured by the government
whereas private loans are funded by banks or lending companies. Federal loan programs are the primary source of education
loans in the United States. The Department of Education manages the two leading programs for federal loans. They are the
Federal Direct Loan Program (FDLP) and The Federal Family Education Loan Program (FFELP). The FDLP allows students and
parents to directly borrow money from the government. The FFELP loans are funded by state lending agencies, but insured
by the federal government. In most cases, when a school participates in the FFELP, they will recommend that you use their
preferred lender.
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Subsidized vs. Unsubsidized Federal Student Loans Federal student loans usually fall into two categories, subsidized or unsubsidized. Subsidized loans are granted based on the financial needs of the student and their families. The amount of the subsidized loan is determined by the school. The interest on subsidized loans does not start to accumulate until the repayment process begins. Also, you are not responsible for paying any interest during grace or deferment periods. Unsubsidized loans charge interest starting when the money is administered. When the repayment period begins, you must pay interest on the interest that has already begun to accumulate. One way to avoid paying so much interest is to pay the interest as it accumulates. Examples of Federal Student Loans Federal Stafford Subsidized and Unsubsidized Loans The most common types of federal student loans are the federal Stafford subsidized loan and federal Stafford unsubsidized loan. To be eligible for these loans you must fill out the free application for federal student aid (FAFSA), be enrolled or will be enrolled in school for at least half-time, attend a college that is involved with the Federal Family Education Loan Program, and must not be in default on any other student loans. For graduate and professional students with a subsidized loan, and for all students with an unsubsidized loan, the interest is fixed at 6.8%. The interest rate for undergraduate students awarded a subsidized Stafford loan between July 1, 2008 and June 30, 2009 is 6%. There are loan limits that apply to both Stafford loans. The limits may depend on what year the student is in and whether they are an independent or dependent. |
Federal PERKINS loan The Federal Perkins Loan is a subsidized loan with a low interest rate of 5%. The Perkins loan is granted to either undergraduate or graduate students who qualify as having relatively significant financial needs. After the school receives a specified amount of money from the U.S. Department of Education, they will combine it with their own loan funds and distribute it to students with the greatest financial need. There are less fees and a longer grace period associated with the Federal Perkins loan. Unlike Stafford loans, Perkins loan money is borrowed directly from the federal government and the school rather than major lending institutions. Also students who receive a Perkins loan must prove and maintain specific standards of academic success. Federal PLUS loan There are two types of federal PLUS loans, the grad PLUS and parent PLUS loan. The federal grad PLUS loan is available to graduate or professional students. The parent PLUS loan is for parents or guardians of undergraduate students. To be eligible for a PLUS loan, the student must be enrolled in school for at least half time. The PLUS loans are awarded on the basis of credit history, not financial need. It is recommended that students and parents exhaust the use of federal Stafford loans, grants, and scholarships before applying for a PLUS loan. The PLUS loans are available to make up the difference of what all other financial aid will not cover. The amount of the PLUS loan an applicant is eligible for is determined by the total estimated cost of all school related expenses minus all other financial aid already awarded. We hope the above information help you decide which federal student loan is right for you. |
