Federal Student Loans and Government Student Loans
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Filed under Student Loans
Federal student loans are another name for government student loans. These are loans made available to both college and university students to help them supplement their education. The money is disbursed directly to the school as opposed to being given to the student.
These loans may be subsidized by the government or they may be unsubsidized. Both subsidized and unsubsidized loans are guaranteed by the United States Department of Education on a direct basis or by way of guaranty agencies. The decision of whether a student qualifies for a subsidized federal student loan or an unsubsidized one is related to financial need.
Practically every student planning to attend college or university is eligible for federal student loans or a government student loans. There is no credit check which means an individual’s credit score does not play a role in whether or not they are approved for the loan. Generally other financial issues are not taken into consideration. Examples of federal student loans include the Federal Perkins loan, the Stafford loan and the Ford Direct student loan.
Both subsidized and unsubsidized student loans through the government offer the student a grace period of six months. This means that the student does not have to begin repayment on the loan until six months following their graduation from a post secondary institution.
Subsidized versus Unsubsidized Federal Student Loans
Subsidized government student loans are only available for those students who demonstrate a strong financial need for them. For example, a student who would not be able to attend college if they could not obtain financial aid would be someone who would fall under this category. Financial need also tends to vary depending on which school the student wishes to attend. The costs are higher at some institutions of higher learning than at others. For those who receive subsidized loans the federal government will make the interest payments while the student attends school. What this means is that if you borrow $10,000 to go to school then that is how much you owe once you graduate.
Unsubsidized federal student loans are guaranteed by the United States government but in this case the government does not pay the interest while the student is in school. Instead the interest accrues during the years that the student attends college. Due to the fact that demonstrated financial need is not a factor in terms of this type of loan, nearly every student is eligible for one. In this case if you borrow $10,000 to attend school and $2,000 in interest accrues during your years of schooling then you will owe $12,000 once you graduate. The interest following graduation will begin accruing on the $12,000 that the loan is now up to. This accrued interest will be capitalized (or added in) to the amount of the loan and the borrower will be required to begin repayment on the total. Students can make interest payments while still in university or college. However most students do not do this because they cannot afford to do so.
Graduate students can apply for federal student loans just as undergraduate students can. The limits for loans for graduate students tend to be higher. A subsidized Stafford loan for a graduate student is $8,500 and for an unsubsidized loan it is $12,500. Pleased note however that these limits can differ depending on the course of study for the student. The Federal Perkins loan is also an option for a graduate student who requires financial aid. The limit for this loan is $6,000.
The PLUS Loan for Parents and Graduate Students
There are also a government student loans called the PLUS Loan that is geared towards parents who have daughters and/or sons that are attending college or university. The PLUS loan stands for “Parent Loan for Undergraduate Students.” These loans are issued to the parents of college students. Parents have the ability to borrow more money than the students could on their own. The PLUS loan is often a way to fill in the gaps that exist in terms of financing a college education. It is important to note that there is no grace period whatsoever when it comes to a PLUS loan. This means that the primary borrower must begin making payments immediately after the funds have been disbursed.
It cannot be emphasized enough that this is a loan for parents and not the students of the parents. The parents are therefore responsible to pay back the loan and not their children. This is not a type of loan where the student needs a co-signer but instead a loan where the parent is the borrower and takes complete responsibility for repayment. If the parent does not pay then it is their credit rating that will suffer as a result.
Recent legislation has now made it such that graduate students are eligible to apply and be approved for PLUS loans in their own names. No parents need to get involved in this instance. The Graduate PLUS loans come with the exact same terms and interest rates as the Parent PLUS loans.
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