Personal Finance

Federal Student Loans: How Can Students Benefit From Them?

What are Federal Student Loans?

Student loans provide financial help to students enrolled in public and private colleges, universities or trade schools that participate in federal aid programs. The loans are offered by private agencies under the aegis of U.S. Department of Education through the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP). Federal student loans are offered to cover their various educational expenses such as tuition fees, room rents, boarding, books, transportation and school supplies. Some of the important loans are: Federal Stafford Loan, Parent PLUS Loan, Graduate PLUS Loan and Perkins Loan.

Stafford Loans

Stafford Loans are federal student loans. They are offered directly to the university and college students. They are aimed primarily at supplementing the students’ personal and family income resources, scholarships, grants and work-study. The US Government subsidizes these loans depending upon the financial circumstances of the beneficiary. These loans can be unsubsidized as well. These loans are guaranteed by the U.S. Department of Education. Almost all categories of students are covered under these guarantees irrespective of their credit scores or other financial issues.

The annual limits are modest both for the graduates and non-graduates. These loans are both subsidized and unsubsidized. Both the subsidized and unsubsidized loans provide for a grace period of six months. You will not have to pay back your loan until six months after your graduation. The limit for the freshman undergraduate for the year 2007 is $3,500 per year. It is $4,500 for sophomore upgrades and $5,000 for junior and senior upgrades.

Subsidized Loans

The students who come from lower income families can avail of government subsidy. The interest on loans to such students is paid by the U S Government. To explain this, a student who gets a federal loan, say, of $10,000 during the college will just pay the principle amount and no interest after graduation.

Unsubsidized Loans

Unsubsidized loans are offered to students who come from financially stronger families. These students have to pay the interest on the principal amount of money they borrow. The interest accruing upon the principal is capitalized into the loan amount.

Parent PLUS Loan

Parent PLUS loans are different from the other federal loans. These loans are offered to the parents of the students who have part time enrolment in certain prescribed programs conducted in the post-secondary institutions. They offer larger amounts of loans and the borrowers have to pay higher interest rates. The parents rather than the students are required to make repayment commitment. These loans can also be availed by the graduate and the professional students.

Graduate PLUS Loan and Perkins Loan

Similar to the Parent PLUS loan, Graduate PLUS is an unsubsidized yet government guaranteed loan meant to cover the cost to complete graduation. This loan is given directly to the student under his/her own signature and credit rating. It carries the same federal loan deferment and forbearance options. Perkins loan is a low interest loan for graduate students. The college acts as the lender and uses a limited pool of funds it receives from the federal government.