Public Government Loans

Student Loan Tips & Advice Blog

Public Government Loans 

The United States Federal Government has been involved in ensuring that its populace is well-educated by sponsoring many different types of student loans. Federal student loans have lower interest rates than private loans. These federal loans are available for the student or parents. Most are needs-based.

The Federal government requires that students and parents fill out the Free Application for Federal Student Aid (FAFSA). It will be used to calculate a student’s eligibility for federal aid. The FAFSA looks like a tax form and is used to track income and assets of parents and students. About 5% of parental assets will be expected to be used for the student’s school expenses. About 25% of the student’s assets will be expected to be used for the school expenses.

The government is making some changes to its loan programs. One change is that private banks won’t be responsible for lending government-backed loans to students anymore. Another change is the gradually phasing out of the FFEL and William Ford loans.

These are the primary government loans available:

+ Consolidation

+ Perkins

+ Plus

+ Stafford

The government is placing its Stafford, Plus, Federal Family Education Loan (FFEL) and Consolidation loan programs into the Direct Loan Program, which will be administered by the U.S. Department of Education.

a) Consolidation

The Federal Consolidation Loan allows students to combine different public and private loans together for one interest rate and monthly payment. It can lower the monthly payment by extending the length of the repayment period.

b) Perkins

The Perkins Loan is a fixed, low-interest loan (about 5%) aimed at students who demonstrate substantial financial need. The amount of the loan is based on funds available at the college. The college is the lender and determines the loan amount – usually after other financial aid has been determined. There is a six-month grace period for repayment after graduation. The student is given up to ten years to repay the loan. Payments are made to the college. Deferment provisions for unemployment and teacher cancellation programs are available. Perkins loans are for undergraduate or graduate study.

c) Plus

The Federal Plus Loan is made in the name of the parent, it requires a credit check. There is no needs test for qualification. The amount available is based on the Cost of Attendance (COA). A higher interest rate is charged. Repayment begins 60 days after disbursement. The Federal Government is the lender for the Plus loan and payments are made to the Federal Government.

d) Stafford

The Stafford loan is divided between the non-subsidized and subsidized loans where the government pays the interest on the subsidized loans. A student can qualify for both subsidized and unsubsidized loans.

The loan will be made in the name of the student, the subsidized variety is need-based and no credit check is run. The unsubsidized Stafford loans provide higher amounts of money with a higher interest rate. These loans are guaranteed by a private guarantor and backed by the government. Repayment begins after the student has left the school, does not satisfy half-time status or has graduated.

Payments are made to the U.S. Government. Delayed payment and deferment provisions are allowed. There are both undergraduate and graduate Stafford loans.

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