Federal student loans offer financial help to students enrolled at college and are generally offered by private organizations under accordance from the US Department of Education through the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP). Federal student loans cover the overall school expenses, including the tuition fees and maintenance.
Types
Four major types of student loans are available to students which can be broadly classified as Stafford Loans, PLUS Loans, Perkins Loans, and Consolidation Loans. These loans are aimed at different sets of people and have different interest rates and repayment terms.
1. Stafford Loans: The main federal education loan for students is the Stafford loan and has two types. They are offered by the federal government or third party lending institutions and are of two types-
a. Subsidized Stafford Loans- The borrowers won’t be charged any interest until after they leave school.
b. Unsubsidized Stafford Loans- Interest is charged from the time they are disbursed until completely paid off.
2. PLUS Loans: The Parent Loans for Undergraduate Students (PLUS) is available to parents of students enrolled at least half time at an approved educational institution. These loans have a higher interest rate and cover a larger part of the cost of education. Also the commitment is taken by the parent and not the student.
3. Perkins Loans: They are guaranteed by the US Department of Education and are available for undergraduates and graduate students. They have a fixed rate of interest and the money is given to the college by the government and the college distributes it. The loan program is determined on the basis of the level of need, the funding level of the school and the time of applying for the loan.
4. Consolidation Loans: They are designed to help borrowers manage their loan debt by combining all suitable loans into a single, guaranteed FFELP loan with a longer repayment term, fixed interest rate and a smaller monthly payment. Due to extended repayment periods, the amount of total payment made by consolidation borrowers is greater.
