Types of Federal Student Loans

Posted by Nick Niesen on October 29th, 2010

Students who look for financial aid during studies either go for federal student loans or private student loans. Federal student loans are offered by the US government, which can be availed directly through banks, student loan lenders, school, or from Federal Family Education Loan program otherwise known as FFELP. Federal loans are offered with very low interest rates, longer repayment periods, and various kinds of repayment options with easy credit requirements than the private loans. In case of federal subsidized student loan, the interest is paid by the government to the financial institution when the student has been studying and also during the grace period. A federal loan may not be enough to cover all the expenses of the student and in that case, the student might have to take a private student loan to supplement his needs. It has to be remembered that, certain fees are deducted from the federal student loan amount, which means the student will not get the full loan amount applied for and should only take the actual amount into account while preparing the budget.

There are different kinds of federal direct student loans from different institutions. Hence, it is advised to take the guidance of the parents or from other financial aiding sources to decide on the type of federal direct student loan to suit the student the best.

Perkins loan option:

This loan can be availed by needy undergraduates and graduates, which is availed by them at a fixed lower interest rate of five percent. The funds are dispersed by the school, making it very easier to get the amount as soon as the student gets enrolled, rather than waiting half time to be eligible in the case of other federal loans.

Stafford loan option:

It is the most common federal student loan, which can be applied for by anyone. They offer fixed interest rates and are in the form of subsidized federal student loans and unsubsidized federal student loans. When the student avails the subsidized federal student loan, the government pays the interest when the student is studying, but in the case of unsubsidized federal student loan, the student has to the pay the interest but can defer making any such payments until he completes his graduation.

PLUS loan option:

It is otherwise known as the parent loan for undergraduate students. It is given to the parents of undergraduate students who are dependent and have enrolled at least half time. This loan option requires the applicant to be free from any adverse credit experiences like the bankruptcy, default etc on their credit record. These loans are offered at a fixed interest rate that is higher than the Stafford loan rate and also the repayment starts when the student is studying in the school.

To get a federal student loan, the student should complete the FAFSA (free application for federal student aid) and submit the same.

Tips to make the process easier:

Before filling up the FAFSA form, the student has to be very organized and should have gathered all the necessary information to fill the form. It is very important to apply much earlier than the closing date for the application, to avoid any last minute trouble or avalanche. While filling up the form, one needs to be very patient and should allocate enough time. It takes an hour to complete the application normally.