Government Student Loans
The government loans to student are also known as Federal student loans in the United States. These loans are available in the subsidized or unsubsidized form according to the student’s need. This loan is available to the students through funds distributed directly to the school and adds-on to the personal and family resources, scholarships, and work-study.
To apply for a government student loan, you need to fill out the Free Application for Federal Student Aid (FAFSA). This form will calculate your ability to pay for college and determines the tuition amount you need. Mostly all students are eligible to receive federal loans irrespective of the credit score or financial issues if any.
Federal Loans to students: These loans can be either subsidized or unsubsidized. Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower, becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit. Subsidized federal student loans are only offered to students with a demonstrated financial need. Financial need may vary from school to school. For these loans, the federal government makes interest payments while the student is in college. For example, those who borrow $10,000 during college will owe $10,000 upon graduation. Unsubsidized federal student loans are also guaranteed by the U.S. Government, but the government does not pay interest for the student, rather the interest accrues during college. Nearly all students are eligible for these loans regardless of demonstrated need. For example those who borrow $10,000 during college will owe $10,000 plus interest upon graduation.
Stafford loan: This is the most popular type; it's funded and guaranteed by the federal government; it can be either subsidized or unsubsidized or a combination.
Perkins loan: This loan is the same as a Stafford loan but currently has lower fixed rate (5%). You have to demonstrate financial need to be awarded this loan.
Federal Loans to Parents: This loan is given to parents for funding their child’s college education. It is the responsibility of the parent to pay back the loan and also that the loan amount is usually higher. These loans are also called PLUS loan ("Parent Loan for Undergraduate Students"). Here there is no grace period and the payment starts off immediately.
Graduate PLUS: Under new legislation, graduate students (full time or half time) are eligible to receive PLUS loans in their own names. These Graduate PLUS loans have the same interest rates and terms of Parent PLUS loans.
Along with this information you also need to know how the money gets to the student or the school. Well, the two distribution channels are the Federal Direct Student Loan Program (FDLP) and the Federal Family Education Loan Program (FFELP).
Federal Direct Student Loan Program are funded from public capital originating with the U.S. Treasury and from there passes through the U.S. Department of Education, then to the college or university and then to the student.
Federal Family Education Loan Program loans are funded with private capital provided by banking institutions. Hence students who use FFELP loans are able to take advantage of payment options similar to those available to customers who take out a home loan or a consumer loan.
