What Are Federal Student Loans

What Are Federal Student Loans
Photo by Visha Angelova – CC BY-SA 2.0

Federal student loans as the name implies are loans given out by the U.S. government to students for furthering their education at the school, college or university level. Federal student loans are usually given at school levels to families of students or to students who wish to go for higher studies. They usually cover the expenses of education i.e. tuition fee, cost of textbooks, notes and other stationery items, and sometimes even the cost of purchasing a computer to assist the student in his/her studies.

Federal student loans are usually subsidized. That means they are provided at discounted rates. The unsubsidized loans are provided from private organizations or private banks at a very high interest rate. This generally makes the final amount very large at the time of repayment and puts a lot of pressure on the student. Therefore subsidized federal student loans are much better.

The federal student loans are guaranteed by the U.S department of education and the U.S government. The loan has to be repaid within a period of six months usually. That is if the student covers his graduation, then after graduation he/she has a period of six months to start the repayment of loan.

The federal student loans are usually given to students who successfully prove that they need the subsidized money to pay for their education on producing proper family financials and tax returns. Financial need of the school to which the student is applying for may also vary and that may affect the federal student loans.

Four major federal student loans available are:

• Stafford loans
• Consolidation loans
• Perkins loans
• PLUS loans

I don’t happen to have much info on the Perkins loan as a federal student loans option. Though I can tell you that it is a subsidized loan and the U.S department of Education guarantees it. It is available for graduate and under-graduate students alike. It has a fixed interest rate which is discussed with your institution before being fixed.

The Perkins loan in the category of Federal student loans is decided on three major parameters namely, the time of your application, the funding your school can provide you and the amount of money that you would need after getting funding from your school, and this is decided by your school. You would have a period of ten years for the repayment of your loan. And you can address your checks to your school only.

Now I’d tell you about the Stafford loans in the category of federal student loans. These loans come from the William D. Ford direct fund program and are aimed at helping students of low income groups to study in the fields of science, technology, engineering etc. In order to become eligible for these loans the student would have to take admission in the schools which come under the list of schools covered by the U.S department of Education.

Stafford Loans are of two types namely; subsidized and unsubsidized. For the subsidized loans the student would have to fill out the FAFSA form available online or at the nearest library or university. The student would also have to furnish the economic details of himself and his family mainly because subsidized loans are reserved for poor families.

On the other hand students applying for the unsubsidized part of Stafford loans for federal student loans need not submit their family financials. The student would be charged interest on a higher amount or principle amount. Therefore it’s advisable that the student may start paying the loan money during his course if possible.

One can claim the Stafford loan in federal student loans category by filling out the FAFSA form. Schools and colleges usually assess the amount you’ll receive from your FAFSA form only. While filling out this form you’d also need to fill out the Master Promissory Note or the MPN. The MPN is a document or an agreement that makes you bound to repay the loan amount. It also contains all the necessary rules, regulations and conditions of the loan. It aims at preventing fraud.

The money in the federal student loans would be given directly to your school. If you are borrowing money for the first time then the school would not disburse the money to you before 30 days of your enrolment period.

The interest rates vary in case of federal student loans depending on the whether you are an undergraduate or a graduate. If you are an under graduate student then, the current rate of interest is fixed at 4.5{8e6cf663dd8bbfda1f4fdd38af84969e57c1756d87f56947f5c326d1d8b26fdc} for you. If you are a graduate student or studying in any university then the interest rate is fixed at 6.8{8e6cf663dd8bbfda1f4fdd38af84969e57c1756d87f56947f5c326d1d8b26fdc} for you.

There are several loan repayment options available in case of federal student loans. Depending upon the time you need to repay your loan you can take the repayment period which usually varies from 10 to 25 years. You can take up a repayment plan calculator from the loan service center. Or you can always get information about repayment of loan in the category Repayment Information on the website of the bank.

The other plan in the federal student loans is the PLUS loans. PLUS loans are especially designed for parents of students who are dependent on their families for expenses. Biological or adoptive parents can apply for this loan to pay for their child’s education expenses. The student must be less than 24 years of age and must not be married or already have a degree.

Parents, who have adverse credit history, can also get a loan if he can get an endorser who promises to pay the loan in case the parent fails. Being a U.S national is also a requisite for this loan. A MPN is also signed in this case. The interest rate for this loan is 7.9{8e6cf663dd8bbfda1f4fdd38af84969e57c1756d87f56947f5c326d1d8b26fdc}. The loan has to be repaid in 10 to 25 years.

With such federal loan options available, you can be sure that the U.S. government is trying their best to ensure that no student is deprived of the basic right to education. If you are a parent with school going children, you can take advantage of these federal student loans to help your children reach their full academic potential.

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