When it’s time for college or University, many parents face this milestone with a headache as tuition costs a lot and often there is no other way than just to get a loan.
Luckily, Student loans are offered in a big variety of forms so one can choose the most convenient and beneficial one based on financial need and income. There are two big classes of loans: Federal loans (provided by U.S. government) and Private Student’s loans that are more expensive but easier to qualify for.
In this review, we will explain all aspects of Federal Student Loans programs with all advantages and disadvantages. There are several criteria for eligibility for each Federal program and one should understand clearly what type of loan and help are available for them. The first step towards getting a Student’s loan aid is completing the FAFSA application form.
Now, it’s time to look at Federal Student’s loans closely.
Stafford loans (direct loans)
Direct Stafford loans are the most popular Federal loans among graduate, undergraduate and professional students, that seek for financial help for covering tuition (and related) expenses. As the price for tuition varies significantly depending on the type of college or University, the sums of loans vary accordingly as well. Moreover, each family has its own level of income and these two criteria (income and need) define the eligibility of a borrower. The advantage of a direct Stafford loans is massive, starting from the very low fixed interest rate to a variety of repayment options, customized for needs and abilities of each borrower.
Subsidized Stafford loans
Subsidized Stafford Federal loans are originated by the government as an aid loan program. It is called subsidized because Federal government pays the interest rate for the loan during the whole time the student is at the college or University. After the 6 months counting from the day the tuition is finished, a borrower starts paying the interest rate from his own pocket. Subsidized loan is a need-based loan, that means that the sum of the loan is exactly the sum needed to cover the tuition and not even dollar can be borrowed above that sum.
The average interest rate for subsidized Stafford loans is 4-6%, depending on the term of the loan and the sum of borrowed money (the longer the term the lower the interest rate).
Unsubsidized Stafford loans
Unsubsidized Stafford Loans are available for undergraduate students. The main difference between subsidized and unsubsidized loans that latter is not based on financial need of a student, so the government does not pay the interest rate, while the borrower himself does. Still, the government does not require paying the interest rate until the student has finished their education.
The ceiling for the unsubsidized loan is higher than for a subsidized one (31K dollars vs.23K dollars). Both types of loans have several repayment options so a student can choose the most convenient one: graduated, standard, extended and repayment that is based on size of income of the borrower. Obviously, unsubsidized loans are less beneficial and one cannot save money by avoiding paying interest rate during school time.
Perkins loans are another type of Federal Students aid from the Department of Education, which is available only for students who are in a deepest financial need. One, in order to qualify for a Perkins loan, has to show a high financial need and match strict requirements.
Perkins loans are characterized by few advantages and one of them is a fixed and low interest rate that does not exceed 5%. Perkins aid (unlike the Stafford loan) goes straight to the account of the college and then, money is directed by the college on the student’s needs and expenses (the tuition, books, housing costs, fees, etc.).
Remarkably, that Perkins loan is the safest loan for students as it has a fixed rate during the whole term of the loan. Even if the economic conditions have changed and the average pricing and interest rates jump up, Perkins loan’s interest will not raise.
Take a note that not all schools and colleges are willing to participate in Perkins loans program, so before applying to it, make sure your school is on the list. Find here whether you are eligible for Perkins loans and find out how much you can borrow based on given criteria.
PLUS loans stand for Parent Loans for Undergraduate Students and available for those parents whose children are enrolled minimum half-time at the college or University that is on the list of U.S. Federal Department of Education.
In order to qualify for PLUS loan, a person must not have a big credit history. If you find yourself matching the basic eligibility requirements, you have to sign a Master Promissory Note (MPN) that means you fully understand and agree with the offered terms of the loan. The average interest rate on Plus loan for undergraduate student is 7%.
Grad Plus Loans
This type of Federal student’s aid is the most expensive loan provided by the Department of Education. By applying to Grad Plus Loan you get an opportunity to borrow significantly larger amount, up to the total cost of the whole tuition with all costs of living minus other financial aid received previously. This loan is designed for graduate students only (that is why it is called “Grad”).
The interest rate on Grad Plus loan is higher than on other loans (7% like for a Plus loan), while the ceiling for a loan is the highest as well. It is reasonable because as a professional graduate student one needs considerably larger funds for the future tuition.
As an alternative, you may take a look at terms of Private Student’s loans with softer eligibility terms and no limit to the size of the loan.