Federal student loans are loans that are designed to help a student for tuition and other related college expenses. There are several different types of Federal student loans. Some of them are based on financial need, which is determine by the information that you fill out on the FAFSA form, while others can be given no matter what you income level is.
Each school is responsible for calculating the amount of aid that you get. They use a formula that takes into account the cost to attend the school, and the need that a person has. There are different types of student loans, so it is important to pay attention to the different requirements for each.
It is much cheaper for a student to take out a federal loan than a private one, because the rates are usually much more favorable unless you have nearly perfect credit. Government backed loans have incredibly low rates that are fixed, so they will never increase. Most students are eligible to receive at least something in federal aid towards their education.
They do not have to pay any of this money back while they are in school, unless of course they choose to pay the interest that accumulates. After leaving school, a student will usually have a grace period of around six months before they have to start making payments. This will give them an ample amount of time to find a good paying job. Below are a list of the most common types of Federal student loans and basic criteria for each.
Federal Subsidized Stafford Loans
This type of loan eligibly is based totally on need, and interest isn’t a factor because it doesn’t accumulate as long as the student is still in school. A student must be enrolled at least half-time to receive a subsidized loan. The interest also does not accrue during any grace period, which makes the loan a great deal for students.
The amount of money that a student receives is capped by the year they are in at school. A freshman can receive a maximum amount of $3,500.00 under this category.If they are an independent student, then they will be eligible for more money but only under the unsubsidized category. The yearly loan amount limit will increase for every year that the student progresses.
Sophomores can get $4,500.00 and if you are in your junior or senior year you will be eligible for $7,500.00. The interest rates on loans in the subsidized category will be 5.6% if they were taken out from July 2009 to anytime up to the end of June 2010. For 2011, 2012 and 2013, the rates will fluctuate. They will be 4.5%, 3.40% and 6.80% respectively for each of those three years.
What are Unsubsidized Stafford Loans?
An unsubsidized Stafford loan is not based on any type of need, and students will have to pay all interest that accounts. The interest will build even when they are in school. Independent students especially take out these loans.Any independent student can get an additional $4,000.00 per year for their first two years of school and those in their last two years of school can get $5,000.00 for each year.
The interest rate typically does not fluctuate with this type of loan, and it currently remains at a fixed rate of 6.8%. This type of loan should be taken out only if it is absolutely essential to pay your expenses, because the money has to be paid back eventually. The amounts can really rack up over time, and you don’t want to struggle to make your payments
The Federal Perkins Loan
A Federal Perkins Loan is for students who demonstrate exceptional financial need. It has a fixed interest rate just as other federal student loans do. This rate is just 5%. It is very similar to the subsidized Stafford loan. The school actually makes the loan, and the student will be responsible for paying the school back.
The school is only given a certain amount of money for this loan type each year, so it is important to apply early. Once the funds for the Perkins loans are depleted for the year, there will be no more money available until the following year.
The great thing about this type of loanis that it does not have any fees attached to it. It also has a longer grace period, which gives students more time to pay. To be approved for this loan the student simply needs to fill out a FAFSA form. The school will either pay the student directly, or they will apply the money to their student account.
If they meet maximum eligibility criteria, a student can be eligible for $4,000.00 each year of their undergraduate schooling and can receive $8,000.00 for each year of their graduate studies. Students who are in the military and on active duty can extend the nine month grace period that is offered with the Perkins loan. The payment amount at the end of the grace period will depend on the total amount of the debt and the maximum allowable repayment period.
Federal PLUS Loans for Parents
This type of Federal Student Loan is actually taken out by a parent rather than a student. It is designed to help pay for tuition and other school expenses at eligible institutions. Graduate students may also apply for this loan type. In order to qualify, the student has to be going to school at least half time, and the parent must have a good enough credit score to be approved.
These loans are great, because they allow parents to get low interest rate loans to put their kids through college. These loans are not based on need. The interest rate is a fixed 7.9%, but if you set up automatic payments when it comes time to repay the loan, you can get a 0.25% discount.
There are maximum limits on the loans, and that limit is the cost of your school attendance with any other financial aid that you have been awarded deducted. The loan will typically be given in two separate installments, and all of the funds will be sent to the school to cover your schooling costs. If there is any remaining money left over, then the parent will receive a check for the difference unless they specify that the money can be released to the student.
The parent can cancel the loan by notifying the lender either before the amounts are disbursed or right after by notifying them immediately after before the term begins. They should not endorse any checks if they intend to cancel the loan.