Federal college loans are the ideal way for students to cover their school expenses, including tuition and fees, books, school supplies, room and board, and even for transportation. A federal loan may even be used for purchasing a new computer or necessary dependent care.
A federal loan can be obtained by initially filling out the Free Application for Federal Student Financial Aid (FAFSA), and claiming grants and other financial aids that you are entitled to, and then applying for a federal loan to cover the remainder of your expenses. The most common type of federal loan for college is the Stafford loan, although there are many others to choose from, including Federal Perkins, Parent PLUS, etc.
According to the College Board, the federal government is the largest provider of financial aid, as they provide up to 75% of all student aid. As mentioned, there are various federal loans for college to choose from, and it is a good idea to check with your college to ascertain which federal loan programs they participate in.
The 4 most popular federal programs are:
Federal Stafford loans
Stafford loans are directly available to college and university students and are typically used to supplement a student’s personal financial resources, as well as for work-study, grants and scholarships. Stafford loans may be subsidized or unsubsidized, and this will very much depend on an individual student’s financial needs.
The most recent academic year has seen subsidized Stafford loans offered at an interest rate of 4.5%, whereas unsubsidized Stafford loans are being offered at 6.8%. Whether a Stafford loan is subsidized or unsubsidized, it is automatically guaranteed by the Department of Education.
The vast majority of students will be eligible for a Stafford loan, irrespective of their credit score or any other financial issues they may have. Both types of Stafford loan have a 6 month grace period after graduation before payments are due, although this is reduced to 3 months if a student becomes less than full-time without graduating.
It is important to be aware that there are both annual and lifetime limits placed of Stafford loans. These limits can change from year to year, and an independent student has the ability to receive more money than a dependent student. The current lifetime Stafford limits include – An undergraduate dependent student can receive up to a maximum of $31,000, of which $23,000 may be subsidized. An undergraduate dependent student currently has a lifetime limit of $57,500, whereas graduate or professional students can obtain up to $138,500 and $224,000 for health professionals.
Perkins loans are intended for undergraduate and graduate students and are well known for offering extremely low interest rates. However, they differ from Stafford loans in that the government will provide a college with a pool of funds that will then be awarded to students who are believed to have an exceptional financial need.
Parent PLUS loan
This federal loan for college is available to the parents of students who are enrolled at least part-time in a program that is offered by a listed and predetermined post-secondary educational institution. A PLUS loan is very different from other federal loans, such as Stafford and Perkins, as it may be able to cover a far larger percentage of the cost of education.
However, the interest rate is typically higher and the loan commitment is undertaken by the parent rather than the student. These types of loans are also available to graduates and professional students.
Graduate PLUS loan
This federal loan is extremely similar to the Parent PLUS loan, as it is a federally guaranteed loan that will cover a large amount of the cost of education, and the fact that it is unsubsidized. A Graduate PLUS loan will be issued to a student based on their own credit rating and signature.
A Graduate PLUS loan also offers the same deferment and forbearance terms as a Stafford loan, which allows graduates or professional students to postpone repayment if they are enrolled in college at least half-time in either a certificate program or degree.
Federal loans for college should always be exhausted first prior to applying for private student loans. This is also a good time for a student to start building a good credit rating, as this will be required to obtain the lowest interest rates on a private student loans.