The federal government has an array of student loan options available. Many prospective students often begin their search for college financial aid with the federal government. As with any financial instrument, federal student loans may suit some students better than others.
To apply for a college loan from the government, a student must fill out a Free Application for Federal Student Aid (FAFSA). The FAFSA must be resubmitted before each school year. The federal government, colleges, and universities use the FAFSA to determine a student’s financial need.
Federal student loans are awarded in four basic types. These types include:
- Subsidized
- Unsubsidized
- PLUS
- Consolidation
A subsidized loan is only for students who can prove that they have a financial hardship or need. The federal government uses a formula to determine a student’s financial need. A subsidized loan will not accumulate interest while a student is attending college at least half-time. The grace periods after graduation and deferment periods also do not accumulate interest from a subsidized loan.
Unsubsidized loans are available regardless of a student’s financial situation. Unlike subsidized loans, interest will be charged at all times for an unsubsidized loan. This includes while a student is attending college and during the grace period after they graduate.
PLUS loans are designed for the parents of dependent students, graduate students, or professional students. Like unsubsidized loans, interest will be charged at all times during the life of the loan. A PLUS loan will cover any costs related to education up to the expense of attending, minus any additional financial aid.
Applicants for a PLUS loan will need to undergo a credit check. For applicants with a poor credit history, an endorser may be necessary to receive the PLUS loan. An endorser is someone who co-signs for the loan and agrees to pay for it if the applicant is unable to do so. If an applicant with a poor credit history can document extenuating conditions about their finances, they may still be able to receive a PLUS loan.
A consolidation loan essentially combines all of a student’s loans into one. Instead of juggling multiple loan payments, a student can make a single payment.
A federal government’s loan has a capped payout each semester. The maximum amount given is determined by a student’s grade level and status as a dependent or independent student.
The federal government offers many different repayment options. These include:
- Standard
- Extended
- Graduated
- Income contingent
- Income based
Students can study the repayment options available and choose the plan that fits their financial situation. They can also switch their repayment plan if there is change in their finances. Financial advisers recommend that students repay their loan as quickly as they are able to. The maximum amount of time allowed for repayment to the government is 10 or 25 years depending upon the plan.
However federal student loans from the government may be difficult to renegotiate compared to private sector loans. Because of the number of students involved in the federal government’s loan programs, personal attention may be hard to come by if there is a problem or question. Private lenders may be able to give students better customer service in some instances.
Federal student loans are often an excellent starting point for prospective students. Although they may not entirely cover the cost of tuition, a loan from the government can help. The FAFSA is free to fill out and has no obligations attached. Prospective students who are unsure about how they may pay for their college education should complete the FAFSA and then determine their course of action after receiving the FAFSA results.