Federal Student Loans | The Business Plan

A higher education is expensive today and many families are experiencing financial problems with the downturn in the economy. This means that more students need to borrow more money than they have had to before.

So what’s out there, when it comes to loans, for a student who is on his or her way to college?

First, there are Federal student loans. To apply for any Federal student loan, and for many private loans from colleges and universities as well, a student, or the student’s parents, will have to fill out a FAFSA or a Free Application for Federal Student Aid. This is a lengthy process and the student, if he’s independent, or the student’s parents, will have to have up-to-date tax information before filling out the form.

Once the FAFSA is filled out a student will find out if he or she is eligible for Federal Student loans. Federal student loans are the most desirable loans available.

The interest rates on Federal Student loans are usually low and the student has a long period in which to pay back the borrowed money.

The best of Federal loans are subsidized federal loans – Subsidized Stafford Loans and Federal Perkins loans.

Subsidized Stafford Loans:

Are available to students who demonstrate financial need.

Are interest free until ten months after the student graduates, leaves school, or becomes less than a half-time student.

Federal Perkins Loans:

Are even better than Subsidized Stafford Loans and go to students who have the greatest financial need.

Have an interest rate of 5%.

Do not need to be paid back for ten years after graduation.

Can be partially cancelled if the student decides to teach in a low income area or is a teacher of subjects that have a low number of teachers – like math or science.

The Federal government also offers unsubsidized loans – Unsubsidized Stafford Loans and PLUS Loans.

Unsubsidized Stafford Loans:

Are not based on financial need.

Are available to any U.S. citizen who is free of drug felony charges.

PLUS Loans:

Are loans for parents of college students.

Parents must have good credit and proof of income.

There are private loans as well. They are available from banks and other lending institutions.

When applying for private student loans , look for low interest rates and low fees or no fees.

When thinking about loans – whether funded by the Federal government or private lending institutions – the place to start is at your college’s financial aid office.

About Student Loans:
Student loans have gained utmost significance with the recent economic crunch. Above 90% of the students pursuing undergraduate studies have gained some form of student assistance to be able to continue education. Student loans are offered to students wishing to take up higher education but cannot afford the cost. These are offered by the federal government, the state, or by private companies and investors. Student loans not only cover the tuition fee, but mostly also provide for the other education related expenses such as transport, accommodation and campus living expense, textbooks and stationary, computers, and photocopies.

Student Loan Options:
Federal Student loans offered by the government are the cheapest and offer the lowest interest rates.

These include subsidized and unsubsidized Stafford loans, Perkin loans, PLUS loans for graduates and parents, and Consolidation loans. Stafford loans can be opted with the direct loan option or the Federal Family Education Loan (FFEL). Direct loans are directly offered by the US Department of Education whereas the others are offered by private investors but are backed by the government. Federal loans do not require students to have a co-signer or a good credit history. These also allow students deferred payments and a grace period of 3-6 months after graduation to start repaying the loan. These are mostly awarded on the basis of financial need of the applicant. Students pursue private loans upon exhaustion of all federal loan options. Private loans offer comparatively higher interest rates and they also require good credit history or a co-signer for the approval of the loan. Private loans can have variable as well as fixed interest loans and can be pursued by anyone, irrespective of the financial need. These private student loans are most commonly offered by Citibank, Sallie Mae, Chase, and SunTrust.

Applying for a Student Loan
To apply for a student loan, applicants need to complete the Free Application for Federal Student Aid (FAFSA) and submit before the deadline. It is the prospective institute’s responsibility to determine a financial assistance package for the student, which can include a direct loan or a private student loan offer.