Federal education loans make paying for an education more affordable. Through the US federal government, students can borrow money to pay for accredited two and four year schools. Those who graduate to seek out a post-secondary education can use Federal education loans to complete a master’s degree, or other educational credential.
Types of Federal Education Loans
There are many different kinds of Federal education loans, some of which are available to all borrowers, and some of which are restricted. We’ll go through each type, going from the most to least common.
Stafford loans – Stafford loans are the most common type of Federal education loans as they are given to most every college student. Dependent on financial need, a student can borrow up to $19,000 for a four-year education, with the amount of loans available rising as the student gets closer to graduation. Stafford loans come in two forms; subsidized and unsubsidized. Subsidized loans have a lower interest rate, which is set and maintained by Congress. Unsubsidized loans are set at an annual interest rate of 6.2% per year, fixed for the life of the loan.
Parent PLUS Loans – Parent PLUS loans are made direct to students’ parents to finance a college education. Often, these loans are taken after the student makes full use of his or her Stafford loans. Unlike Stafford loans Parent PLUS loans are made on the basis of ability to repay. The parents will have their credit scores checked and pulled and their incomes verified in order to prove them to be worthy borrowers. There is no fixed interest rate, and the repayment terms will vary based on the parents’ financial condition. Parent PLUS loans are typically lower interest than Stafford loans, but are usually second choice because they require a parents’ personal information.
Perkins loans – Made direct to the student by the college of choice, Perkins loans are a unique type of lending program from the Federal government. Perkins loans require serious financial need, and are not given to everyone. However, after filling out the FAFSA, you’ll be notified if the Perkins loan can be made available to you. At a rate of 5% per year, and the ability to borrow for undergraduate and graduate studies, the Perkins program is an exceptional federal education loan for those who qualify.
Federal Education Loan Benefits
Federal education loans have a few benefits over private student loans. One of the largest benefits is the fact that the interest rate is locked in at a rate of 6.2% for Stafford loans and 5% for Perkins loans for the life of the balance. Most private loans are made with variable rates, which rise and fall with the general level of interest.
Other benefits include the fact that federal education loans can be made without a cosigner. Stafford loans, for example, do not require a cosigner, nor do they require that a student has a credit history, or an income. Stafford loans are given to just about anyone who is capable of agreeing to borrow for a college degree.
Finally, in the event of economic hardship, you’ll be glad you chose public over private loans. A federal student loan can be consolidated, deferred, or even wiped away with the help of many public aid programs. Of course, those who do defer their payments or seek to reduce their principal balance will have to jump through some hoops and financial difficulty. However, compared to private loans, the flexibility of a public loan is absolutely unmatched.
Always be sure to consider all options before financing an education. Federal education loans are plentiful, but few know of their real benefits compared to private student loans. Before agreeing to borrow any amount of money, speak to a college representative or financial aid officer who can help you navigate the many choices available to you. A financial aid officer hired and paid by the federal government should be available at any school, and their services are, of course, free for the using.