Federal Student Loan Guide
The Consumer Finance Protection Bureau, as reported by American Student Assistance, has reported that out of the roughly $1 trillion in outstanding student loan debt, unpaid federal loans account for about $864 billion of that figure. Unpaid private student loans, on the other hand, total $150 billion.
Why Go Federal?
Students are often advised to utilize all of the federal loan options available to them before they even consider taking out a private student loan. Loan forgiveness plans play a big part in the advice to choose federal loans over private, as this is a benefit only available through federal loans.
No outstanding loan balance forgiveness
Loan forgiveness if the borrower dies
Forgiveness for public service workers
Repayment plans can be tied to income
In a recent Wall street Journal article, Mark Kantrowitz, publisher of Edvisors.com states that student loan interest rates range from 2.75% to 9.3%.
Interest rates on federal loans are set by the federal government, but private loan rates are often dependent on a student’s credit score, or the credit score of the borrower’s cosigner. Since students often have a very short or nonexistent credit history, private lenders will generally offer loans with very high interest rates to these students, if their applications are approved at all. Additionally, if a student applies with a credit-worthy cosigner, private lenders are more likely to approve the application, and the loan will likely have a lower interest rate than if the borrower did not have a cosigner.
Federal loans, however, do not require a cosigner, and the interest rate of a federal loan is not determined based on the borrower’s credit score.
Perkins Loans traditionally have low interest rates. However, these loans aren’t available to everyone. In fact, Perkins Loans are only available to students who:
- Can demonstrate exceptional financial need
- Attend a school that participates in the Perkins Loan program
- Attend school at least part-time
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These are large monthly payments, but the other benefits of Perkins Loans⎯such as the low interest rates and the extended grace period⎯make these loans very borrower-friendly.
A subsidized Stafford loan is for a student that has demonstrated a financial need
The federal government pays the interest on the loan while the student is in school, as well as a 6 month grace period after the student graduates from school
An unsubsidized Stafford loan is available to any student who completes the FAFSA, regardless of demonstrating a financial need
The student is obligated to pay all the interest, even interest accumulated while in school
There are also limitations concerning the amount of money a student can borrow over his/her lifetime. First-year undergraduate students who are dependents, for example, may not borrow more than $5,500 in Stafford Loans, according to the U.S. Department of Education. Some students may need to borrow more than their limits would allow.
For graduate students who bump up against limits, or who don’t qualify for Perkins Loans, federal GradPLUS Loans can be good options.
- Are enrolled at least part-time in a graduate or professional program
- Meet general eligibility requirements
- Do not have an adverse credit history
- Can get an endorser, if the student’s credit history is problematic
Some undergraduate students ask their parents to take out Parent PLUS Loans to help with tuition expenses, and statistics from FastWeb suggest that many parents comply.
A Parent PLUS Loan allows a parent to continue to contribute to a child’s education, without sacrificing important resources like retirement accounts or home equity. However, the interest rate on PLUS Loans is often higher than the rate set for Stafford Loans, so students really should maximize those programs before asking their parents to take out a PLUS loan.
Reducing the Burden
As mentioned, any assistance that comes from these federal programs comes in the form of a loan that students or their parents are required to repay. Students who want to graduate with the smallest loan burden possible have a few important steps to take in order to reach this goal.
The first step involves choosing the least expensive school available, as the loan amounts students take on are heavily dependent on the institutions they attend.
- Work-study programs
- Part-time work
By exploring their options, and accessing free sources of money whenever possible, students can ensure they don’t borrow too much and run into financial difficulties down the line.
What are federal school loans?
Federal school loans, otherwise known as federal student loans, are loans offered by the federal government through the Department of Education. Federal school loans are disbursed to students who demonstrate financial aid, but certain forms of aid, such as the unsubsidized Stafford loan, can be obtained by students who do not have any demonstrated financial need. All federal school loans require students to submit the Free Application for Federal Student Aid (FAFSA) along with their applications. Federal student loans offer the cheapest interest rates and flexible payment schedules.
What are the benefits of student federal loans?
Student federal loans offer a number of benefits over any other form of financial assistance to students. Firstly, student federal loans offer the lowest interest rates and have the most flexible borrower terms of any loans available to college students. They allow students to defer their loan payments until after graduation, which makes repayment less stressful. Additionally, student federal loans provide students with a grace period after graduation to find a job and then begin loan repayment. Student federal loans are disbursed according to the applicant’s financial need, though certain student federal loans, such as unsubsidized Stafford loans, can be taken out without demonstrated financial need. Student federal loans do not require students to have a good credit history or a co-signer.
When do I have to pay federal student loans back?
Federal student loans offer borrowers a number of advantages, and one of these is the allowance for students to defer repayment and to let them pay federal student loans back after they have completed their education. Students can defer their loan repayments and begin repaying the loan after graduation. Most federal student loans allow applicants a defined grace period, which allows them to find a good employment opportunity and then start repaying the loan.
How do I know what I can receive in federal government student loans?
Federal government student loans are the least expensive and the easiest form of raising finance for education. Federal student loans are awarded to students who demonstrate financial need, and are also given out at a low, fixed interest rate. In order to determine how much you will receive in financial aid, you need to calculate the estimated family contribution (EFC), which you can do through our EFC calculator. Once you determine what your EFC is, you may get a better sense of what you will be awarded in federal government student loans.
How can I apply for federal student loans for college?
Federal student loans for college include the Stafford loan (subsidized and unsubsidized), Perkins loan, Parent PLUS loan, and Graduate PLUS loans. These loans are federally funded and come with low interest rates. They are aimed at making higher education a possibility for every student in the nation. To apply for Federal student loans, you must submit a FAFSA application, which is available at fafsa.ed.gov.
What if I have already exhausted my federal loans for college and am in need of more funding?
It is not unusual for students to sometimes exhaust their original funding before their degree program is completed. In such a scenario. the best thing to do is to approach your school’s financial aid office and ask for emergency funds. Second, tap into federal loans; Perkins loans are part of the federal loan options and are awarded on the basis of extreme financial need. The last and sure-shot option is to apply for a private student loan. These loans are easy to obtain and are guaranteed as long as your credit rating is satisfactory.
What are the advantages of federal college loans?
There are a number of benefits associated with federal college loans. The federal government offers Stafford, Perkins, Parent PLUS and consolidation loan options. All of these options offer relatively low fixed interest rates with terms and conditions favoring the borrower. Students may apply for these loans by filling out the FAFSA application and submitting it at fafsa.ed.gov before the deadline date.
Why should I opt for federal student loans without a co-signer?
Federal student loans are based on need, as their key purpose is to make funding available to every student in need. There are a number of advantages of federal loans: the interest rates are low and there are no strict eligibility requirements. Furthermore, federal loans come with flexible repayment options.
What benefits could I obtain if I consolidate my federal student loans?
The biggest benefit of consolidating your loans is that you will have lower monthly payments. Since federal loans are already subsidized, the federal interest rates are probably already lower than the combined interest of your original loans. By consolidating these loans, you have the opportunity of paying back over an extended period of time, which means lower monthly payments.
Should I estimate the cost of attendance before applying for federal student loans?
Students are encouraged to estimate the cost of their college education before applying for federal loans. In fact before applying for any sort of financial aid, students are advised to estimate the cost of their attendance. There are number of benefits associated with this, as it provides students with an idea as to how much money is required to attend college. It also helps students avoid over borrowing, which can be extremely useful in the long run.
Types of Student Loans