Federal Student Loan – The Basics
With college graduates on average earning substantially more over their careers and less likely to experience unemployment, getting a higher education is becoming more and more essential. But as that need has risen so has the cost of higher education.
Of course, while acquiring this education most students haven’t yet begun to work, at least not on a full time basis, which makes the means of paying for the education difficult at times. The government recognized this conundrum of students and so began federal student loan programs for both graduate and undergraduate students.
Federal Student Loans: A Short History Lesson
Unlike grants and scholarships, a student loan is financial aid for educational which must be paid back to the lender. The Department of Education oversees the financial aid programs in the U.S., and they are the entity which makes approvals for loans and carries out the loan program’s rules and regulations. The federal student loan program was begun under the Higher Education Act of 1965 and was part of the Great Society agenda of Lyndon B. Johnson’s presidency.
This act was set in place solely to increase the resources for higher education and give financial assistance for those seeking higher education. As with other federal programs the Higher Education Act programs are amended as needed, and parts can also be reauthorized or expire. In 2003 the whole of the Higher Education Act wasn’t reauthorized, though many parts of it were reauthorized.
Just recently in 2008 however, a bill was passed to reauthorize the Higher Education Act as a whole, and awaits the president’s signature. The government or a guarantee agency guarantees federal student loans, which distinguishes it from other student loans.
The FAFSA Application
In order to be considered for a federal student loan, students most complete the Free Application for Federal Student Aid, or (FAFSA), which is administered by the Department of Education. This application was created to determine at what level the Expected Family Contribution, or (EFC), for college would be in order to calculate a student’s financial need to cover costs of college.
The FAFSA uses different criteria for students who are still dependents of their parents from those who aren’t in order to decide on the student’s financial situation and eligibility for federal, state, and college-based financial aid. There are deadlines as to when the FAFSA must be completed. However, the application can easily be found and filled out online at http://www.fafsa.ed.gov/index.htm .
Federal Direct Loan Program and
The Federal Family Education Loan Program
Federal student loans fall into two basic categories. Loans that are given directly to the student, called direct loans, and loans issued to the parents of students. Loans awarded to the student fall into the Federal Direct Loan Program (FDLP), while loans issued to parents are in the Federal Family Education Loan Program (FFELP).
The key distinction between the two is that direct loans can be subsidized based on the student’s financial need determined on a school-by-school basis. When a loan is subsidized this means that the government actually pays the interest of the loan while the student is enrolled in college at least half-time, as well as during the 6 month grace period after graduation and during any period of payment deferment.
While some direct loans are subsidized, educational loans issued to parents are never subsidized. But the advantage with parent loans is that unlike direct loans to students there isn’t a limit to how much can be borrowed beyond what the parent’s qualify for. Direct loans have annual limits set by the Department of Education dependent on what year the student is in school, whether they are a graduate or undergraduate, and what school they are attending.