Federal Student Loans Funded by the Government
Francine L. HuffLoanBiz Columnist
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.
Sources
College
Board
FinAid
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.
