Federal Student Loans – The First, Best Option For College Loans

Post By: Guest Contributor, The Penniless Student

federal aid for collegeBecause of their lower, fixed interest rates and repayment options, student loans from the federal government should be any student’s first choice when shopping for loans to finance their college education.  Up until July of 2010, government subsidized student loans had been issued through private lenders.  However, beginning in July of 2010, all federal student loans are issued directly by the federal government.

This does not change the fact that federal student loans are the best option for college financing if you must go into debt, and here are some of the facts about federal loans for college students:

  • The interest rate on federal student loans is fixed, and this rate is set by Congress.  This means that federal loans nearly always come with a lower interest rate than private loans.  This also means that your interest rate will not change sometime in the future, affecting your ability to make payments.
  • Federal student loans offer more repayment options.  Employees in certain occupations, like education or the military, may be eligible to have part of their federal student loan debt forgiven (that means no paying it back!).  Additionally, you may be eligible to adjust your payments or freeze the interest on your loan if you find yourself in economic difficulty in the future.
  • For loans directly to undergraduate students (Perkins and Stafford), a good credit history is not a factor for eligibility
  • A student must complete the FAFSA to apply for federal loans.  Go here for more information.

Perkins Loans

  • Available for students with exceptional financial need
  • The government pays the interest while you are in school
  • Repayment begins 9 months after you graduate, leave school, or do not stay at half-time status

Parent PLUS Loans

  • Available for parents of dependent students only
  • These loans have higher interest rates than both Perkins and Stafford loans, but the rate is fixed.
  • Repayment begins 60 days after the money is disbursed
  • Amount may be for up to the cost of attending a college minus all other financial aid received by the student.

Graduate PLUS Loans

  • Available to graduate or professional students only
  • Students must max out the Stafford loan options before applying for this college loan
  • This loan resembles the Parent PLUS loan in nearly every way, except that it is the student’s credit that is used for eligibility

Stafford Loans

  • Stafford Loans are the most common type of federal student loan
  • The rate for Stafford Loans changes each year, but it is a fixed interest rate and is capped by the government
  • Repayment of Stafford Loans begins 6 months after a student graduates
  • Stafford Loans are available based on the table below
Dependent student Independent student
1st-year undergrad $5,500 (maximum $3,500 subsidized) $9,500 ($3,500)*
2nd-year undergrad $6,500 ($4,500) $10,500 ($4,500)
3rd- and 4th-year undergrad $7,500 ($5,500) $12,500 ($5,500)
Graduate/professional NA (All graduate and professional students are considered independent.) $20,500 ($8,500)
*Numbers in parentheses are the maximum amount that can be subsidized for each year.    **Source: http://www2.ed.gov/offices/OSFAP/DirectLoan/applying.html

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