Federal Loan

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What Types of Federal Loan Are Available?

In the 2003-2004 academic year, it is estimated by the College Board that $56 billion of federal loans were granted to enable students to attend university. This accounts for 54% of financial aid granted to students and their parents! There are such a variety of loans available that sometimes it's useful to take stock and discover just what types of federal loan are available. Let's look at each loan, one by one so we can understand the differences between them.

Stafford loans are needs based and awarded to students who are deemed to have financial need. This federal loan is either provided by financial lenders or direct from the government. The government will pay the interest whilst you are attending college and the interest rate is kept low after you graduate. If you are awarded this federal loan as part of your financial aid package, the college you wish to attend will provide you with a list of recommended lenders to approach.

This federal loan can be used by college students to finance their Expected Financial Contribution. They are not subsidized by the government but interest rates are guaranteed to be low. You will have to make interest repayments whilst in college, unless you capitalize the interest, which means add it on to the loan amount, until after you have completed your course.

The Perkins loan is another form of needs based federal loan. It is granted to select students that have the most financial need. The main difference to a Stafford loan is that your college is the lender. The college will contribute some money and the government will pay the rest. The interest rates are kept extremely low and you do not have to start paying it back to the college until nine months after graduation.

The parent PLUS loan is similar to another federal loan, this being the unsubsidized Stafford loan. The main difference is that it is awarded to the parents of the child wishing to attend college to finance their EFC. Again this loan is federally supported so that the interest rate remains low, but the parent must begin repaying the loan sixty days after their child starts their course.