Federal student loans include education loans that are provided via the Direct Loan Program by the Department of Education. The Federal Family Education Loan Program, or FFELP, has officially been discontinued by the federal government, and now all federal student loans will be funded “directly” by the Department of Education, without the need of any outside third-party private lenders.
That being said, there are four major types of federal student loans, which include the following:
- Stafford and Perkins Loans
- PLUS Loans
- Consolidation Loans
- State-based student loans
Stafford Loans
Stafford Loans are available for undergraduate and graduate students who complete the FAFSA, and consist of the Subsidized Stafford Loan, and the Unsubsidized Stafford Loan. The Subsidized Stafford Loan is based on financial need and does accrue interest while you are still attending classes.
The Unsubsidized Stafford Loan is not based on financial need, and does accrue interest while you are still in school. Loan amounts are capped with regard to your degree progress, with special proportions allocated to both the subsidized, and unsubsidized versions.
Stafford Loans are allocated on an annual basis, and almost any student who needs additional money for college should be able to secure at least the Unsubsidized Stafford Loan, as this student loan is not based on financial need, and can be acquired by almost any student who is eligible for federal student aid.
Stafford Loans are typically utilized by students as a central component of their financial aid package, and by submitting a FAFSA by the appropriate deadlines, you can hopefully get a Stafford Loan for the upcoming school year.
The Perkins Loan
The Perkins Loan is a federal student loan that is given out each year to students who demonstrate an “exceptional” financial need. It is considered to be a “campus-based” loan program, with the participating institution acting as the lender by dividing up a limited amount of capital that is provided by the Department of Education.
- Only about 1,800 colleges and universities from around the country participate in the Perkins Loan Program, and by applying via the FAFSA you can put yourself in contention for this loan if your school is a current participant in the program.
The main drawback to the Perkins Loan is that it is very difficult to obtain, mainly because so few schools participate in the Perkins Loan Program, and because it is so heavily based on need. If you are able to get the Perkins Loan you can expect to pay a five percent fixed interest rate for the life of the loan, which should last for ten years, as this is the actual repayment term for the loan.
The amount of money that you can receive will be determined by your school’s financial aid office, and can reach a maximum of 5,500 dollars per year when you are an undergraduate student, and up to 8,000 dollars per year when you are a graduate student.
PLUS Loans
PLUS Loans are a unique kind of federal student loan that is partly based on credit. You must complete both the FAFSA, and another separate application to apply, and your parents must complete the secondary application when you are an undergraduate student, as these are “parent student loans”, and thus require that your parents apply when you are still working towards your undergraduate degree.
- You can however apply for a PLUS loan without your parents once you become a graduate, or professional student.
PLUS Loans can provide you with up to your entire cost of attendance for a particular school year, and come with a fixed interest rate that is currently set at 7.9 percent. They are in my opinion better loans to have when compared to private student loans, and should therefore be considered first before you go ahead and look into any sort of private student loan funding.
You can obtain a copy of the PLUS Loan application from your school’s financial aid office, and make sure that you complete the FAFSA in accordance with this secondary application, as this is a requirement to become eligible for the type of education loan.
Consolidation Loans
Students utilize consolidation loans when they want to “refinance”, or pay-off their current student loan debt with an entirely new loan. This is done to make the repayment process more convenient, and to hopefully reduce monthly payment amounts.
- The Federal Direct Consolidation Loan is the consolidation loan that is offered by the Department of Education, and with this loan you are able to consolidate most of your federal student loan debt.
Any student with at least one Direct, or FFELP Loan that is in grace, repayment, deferment, or default status can qualify for a Direct Consolidation Loan. Federal education loans that are still in what is considered to be an “in-school” status will not be eligible for consolidation via the Direct Consolidation Loan.
Applying for this loan is fairly easy to do, and requires that you complete an application that can be found at loanconsolidation.ed.gov.
State-based Student Loans
State-based student loans aren’t really federal student loans, but I like to cover them at the same time as I’m going over federal loans because they are still provided by the government, and they can still be acquired via the FAFSA.
Each year state governments from around the country sponsor loans that are designed for college students to take advantage of. Some of this aid can be accessed via the FAFSA, and some of it requires that you take the initiative to complete a separate application.
Contact your school’s financial aid office, or your state’s government office that handles college aid to find out exactly how to apply for whatever state-based aid that may be available. This kind of aid usually comes in lower amounts than most federal student loans, although it typically comes with very low interest rates that are preferable to most private student loans.
It is therefore worthwhile to take the time out to at least look into your options when it comes to this kind of education loan, as you can save money and perhaps gain access to financing that wasn’t previously on your radar.
