Federal Student Loans Funded by the Government

Francine L. Huff
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

According to the College Board, the average cost of attending a private four-year college was $23,712 for the 2007-08 school year and $6,185 to attend a public school. While those figures may have students wondering how in the world they'll ever be able to afford an education, there is help available. More than $130 billion in financial aid is available and much of it is in the form of federal student loans.

Federal Student Loans

Choosing a federal student loan can allow students to finance education with a lower interest rate than private student loans. The Stafford Loan is the most popular federal student loan. They can either be given out directly to students and parents by the government or provided by private financial institutions with a guarantee against default by the government.

Student Loans May Be Subsidized

If the student loan is subsidized, the government will pay all the interest accrued while the student remains in school. With an unsubsidized loan the student owes the interest, but it can be added to the principal (capitalized) and deferred along with the principal payments until schooling is finished. Stafford Loans are generally repaid over a period of 10 years.

The Perkins Loan is for students who are exceptionally financially needy. Individual schools lend money to students under this program through a pool of funds set aside by the government. The Perkins is a subsidized student loan with a low rate and no origination or default fees. Current limits for the program are $4,000 a year for undergraduates and $6,000 a year for graduate students.

Loans for Parents and Grads

The Parent PLUS loan allows parents to borrow money for their child's education. This money can be used to pay for any costs not covered by a student's financial aid package. PLUS Loans can be obtained from private lenders or with funds provided by the federal government. These student loans are unsubsidized. All lenders who offer these loans charge the same fixed interest rate. Similarly, a Grad PLUS loan offers the same benefits to graduate and professional students.

Applying for Aid

The Free Application for Federal Student Aid (FAFSA) isn't required to obtain a PLUS Loan, but the parent must submit an application and sign a promissory note. If the parents are denied a PLUS Loan because of their credit history, the student becomes eligible to borrow more money under the Stafford Loan program. Graduate and professional students can obtain PLUS Loans for their own education. However, if they are denied a PLUS Loan because of their credit history they won't be eligible for an increased limit through the Stafford program.

The cost of an education continues to rise. So students needing financial assistance should check out all of the federal student loan programs to get as much aid as they need.

College Board

About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

Editor's Selections: Additional Reading
Related Articles & Tools
Quick Survey

Your answer: 
Correct answer: 

Total votes: 

Mortgage Industry Update Keep up with the latest industry buzz.

Email this article

Please fill in a valid name.
Please fill in a valid e-mail.
Please fill in a recipient name.
Please fill in a valid recipient e-mail.
Email loading...