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Federal student loans are a way to help make attending college affordable. They are often one of the primary ways students fund their education. There are several types of loans. Check with the financial aid department of the institution you plan to attend to get a financial aid application.
When this is processed, you will know what kind of aid you are eligible for. Here are some of the most popular types of student loans.
Federal Stafford Loans
Federal Stafford Loans are the most common type of student loans offered. They are fixed rate federal loans that can be used by almost anyone, whether you are attending college full or part time. Both undergraduate and graduate students can be eligible for Stafford Loans.
The requirements for Stafford Loans are fairly broad. You must be a U.S. citizen, be in financial need (which is determined by the school to which you apply), and not already be in default on any educational loan. You must also have been accepted as a student at a participating institution (which includes virtually all accredited colleges and universities).
In order to apply for a Stafford Loan, you must fill out a financial aid form (FAFSA).
There are both subsidized and unsubsidized Stafford Loans. Subsidized loans are based on financial need. With these loans, you will not be required to pay interest until you start to repay the loan, usually after graduation. Unsubsidized loans are not based on financial need. These are more like conventional loans, where you have to start paying interest right away.
Perkins Loans
Perkins loans are low interest federal loans that are based on financial need. About 1800 schools participate in the Perkins program, and the individual institutions decide how much and to whom these loans are given. Perkins loans can also be tied in with various types of community service, military service and professions such as teaching at schools in low income areas. Participants can have part or all of their loan cancelled in exchange for such service.
The general terms of Perkins loans are 5% interest over a ten year repayment period, which begins ten months after completing their education. Perkins loans are a good opportunity for low income students to fund their education.
Plus Loans
Federal Parent Plus Loans are loans taken out by parents for children attending college. For these loans, the parents must pass a credit checking process. The only other requirement is that the child must be enrolled in an accredited college or university at least half time.
The Plus loan is that it is non-need based, and parents may borrow up to the cost of an entire undergraduate education, including living expenses. This can be a substantial amount of money with today's education costs. Any other financial aid is deducted from the loan amount.
For example, if the cost of college is $10,000 per year and you receive $5,000 from other sources, your Plus Loan will be $5,000. This makes Plus a good way to fill in any gaps in an overall financial aid strategy. The interest rate on Plus Loans, as of this writing, is 8.5%.
Student loans can make education affordable for people who would not otherwise be able to attend college. It is preferable to use loans as a last resort, as you will have to pay the money back at some point. In general, the best strategy is to look first for grants, such as Pell Grants, and scholarships where you don't have to pay back the money. This will put less pressure on you in the long run. However, you should definitely take advantage of student loans for any additional funding you need.
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