Types of Federal Student Loans

 

 

The Stafford Loan

 

Stafford loans are the most common form of higher education loans and can be either subsidized or unsubsidized depending on the financial need.  Both types offer a 6 month grace period in which students are not required to repay the loan.  Stafford loans are among the easiest to obtain with the key requirements simply being half-time enrollment in a college, being a U.S. citizen, resident, or eligible non-citizen, and having no defaults on previous student loans. 

The annual limit for the Stafford loan varies, however the maximum total for an undergraduate is $23,000 and $46,000 for independent graduate students.  Stafford loans are disbursed in two payments; one for the fall semester and one for the spring semester.  Stafford loans can not exceed an 8.5% interest rate, and is currently set at approx. 6% for subsidized and 6.8% for unsubsidized. 

There are numerous methods of repayment on Stafford loans which include standard repayment, extended repayment, graduated repayment, income-sensitive repayment, and student loan consolidation.  Payment may also be eligible for deferment and forbearance which would temporarily delay required repayment.

 

The Federal Perkins Loan

 

The other form of Federal Direct Student Loans is the Federal Perkins Loan.  Federal Perkins Loans are very similar to Stafford Loans, but they are for students in exceptional need of financial aid.  Because of this there are different requirements to financial need, and the students also have to maintain satisfactory progress in their academics.  Both graduates and undergraduates who qualify for a Perkins loan enjoy a lower interest rate of 5%, no fees, better cancelation provisions, and a grace period of 9 months after graduation. 

However the maximum total of the loan is lower at $20,000 for an undergraduate and $40,000 for a graduate student.  Student will be issues the loan payments through their school in at least two installments.

 

Federal Parent PLUS Loan

 

The other type of student loan is the Federal Family Education Loan Program and encompasses Federal PLUS Loans.  These loans issued to the parents of undergraduate, dependent students and aren’t based on income or financial need but rather the parent’s credit.  To qualify the parents must complete the PLUS Loan application and depending on the school the FAFSA may or may not be submitted as well. 

While these loans can’t be subsidized they do offer lower interest rates, all the repayment options for FDSL loans, and with the PLUS loans parents don’t have the same monetary limits so they can borrow more.  Parents can borrow up to the full cost of college attendance, however any other financial aid already obtained will be subtracted from the cost to determine the loan amount. 

With this type of loan payments are issued directly to the school by the lender, and are typically made in two installments as with the Stafford and Perkins loans.  Within 60 days of disbursal of the loan the parents must start paying the loan off. 

Currently interest rates for PLUS loans is 8.02% and there can be fees up to 4 % of the loan amount, 3% in origination fees and 1% in federal default fees.  Also like the direct student loans, in special circumstances the loan repayment can be postponed. 

As of July 2006 independent graduate student are also eligible to borrow money through the PLUS loan programs, which has led to the distinction between Parent PLUS loans and Grad PLUS loans.  Also like the Stafford loans PLUS loans can also be privately funded.

 

Federal Loans Conclusion

 

These are just a few of the options available to students and their families for the covering the cost of higher education.  The federal higher education loans aim to make lending as affordable as possible so that as many people as possible can have the chance at obtaining higher education.  When looked at it that way, federal loans are an investment of sorts that the country is making in its citizens, education, and the betterment of the country.