Discover all details about federal student loans. Read about their benefits, advantages and disadvantages in this free article.
Federalstudent loans are low-income loans provided directly from the U.S. Departmentof Education for students in order to help in covering tuition expenses.Federal loans are offered through Direct Loan Program (DLP of FDLP).
It’simportant to notice that before July 2010 there was also FELP (Family EducationLoan Program). According to this program federal loans were not offereddirectly from the U.S. Department of Education but were offered throughthird-party private institutions like banks.
Howeverafter law legislation this program was eliminated. Today all federal loans aregiven directly from the government. It means that no private loans areparticipated in the funding process.
Federalstudent loans vary depending on the types of lenders and the aim of funding.There are three types of federal loans: Stafford, Perkins and PLUS loans. Eachtype has own features, strong and weak sides.
A Perkinsloans is a low-income loan designed specifically for needy students.Neediness is meaning that students do have financial need. Their family isnot rich, have low income and not much money to spend. In this case studentscan qualify for a Perkins loans and repay it later after graduation. This typeof financial aid is popular but in fact not many people receive funding becausethe number of awarded students is strictly limited. In order to apply forPerkins loans it’s necessary to fill out Free Application for Federal StudentAid (FAFSA). There are two ways of doing it: using web and by printing andsending via mail.
A Staffordloan is the most popular loan type. More and more students today qualify forthis type of student aid and receive enough funding for college. Stafford loansare coming in two types: Subsidized and unsubsidized.
SubsidizedStafford loans are designed specifically for student with financial need. Thistype of loan is similar with Perkins loans. The difference is that Perkinsloans are for students with exceptional financial need. Bu the termsubsidized the government means that it pays the interest for a borrower. So,a borrower owes only the main sum he must pay back. In other words there is nointerest paying involved.
UnsubsidizedStafford loans are offered for student regardless financial need and almost allstudents qualify. However the government does not subsidize this loan bypaying the interest. In this case, a student has to pay the loan plus theinterest that can accrue.
PLUS loansare low-income loans offered for both graduate students and parents ofdependent students. There are eligibility requirements for potential borrowers.One of the main requirements is to have a good credit history. This type offederal student aid is dealing with credit-based criteria. It means that aborrower must have good credit history or a credit-worthy cosigner. A studentcould not qualify if he doesn’t meet requirements. This type of federal loansis not cared about financial need of borrowers. It doesn’t if a borrower haslow-income or financial troubles. Only a borrower is responsible for it. So,some risk involved.
In the endit’s necessary to point out that there are main types of federal financial aid:Stafford, Perkins and PLUS loans. Each loans has own features, advantages anddisadvantages and it’s necessary to know all details of each one in order to bewell informed and have an opportunity to apply effectively.