Federal Student Financial Aid
Federal loans help students and their families to obtain financial aid to pay for college or a university. This is the largest student financial aid program in the USA. It produces tax benefits. It offers subsidized and unsubsidized Federal Stafford Loans, Federal Plus Loans (for parents) and Federal Consolidation Loans.
Private financial institutions (banks, credit cooperatives and loan and savings companies) lend money to families in co-operation with the federal government, thus offering low interest rates. The cost of such loans is affordable for students and their families, and under certain economic and family circumstances the government may even pay for some of the loan’s interest while the student is still studying (subsidized loan).
The federal government applies an initial charge of 3 %, and the financial institution granting the loan can charge a maximum 1 %. Both charges are automatically deducted from the loan. Students therefore receive the granted sum minus these charges.
A Stafford Federal Loan is a low interest and long term loan (normally lasts for 10 years) with many benefits to the student. Interest may vary but there is a limit to how much it can grow 8.75 %. Interest is reviewed on July 1st every year, and it is guaranteed by the federal government through the education department.
A Stafford Federal Loan is the most popular and widespread loan type among students because the repayment conditions are quite flexible. Sometimes the student can just pay a monthly minimum of USD 50.00, or they can choose a gradual installment increase.
Stafford loans options:
1. Stafford Federal Loan Subsidized
• Government pays for the entire loan interest while the student is still studying.
• Students do not repay interest until six months after they finished or left university.
• You need to prove your economic need to obtain this kind of subsidy. You also need to have applied for a Pell grant beforehand, and you must be either an American citizen or a foreigner with a permanent residence permit.
2. Stafford Federal Loan Non-subsidized
• Students pay for the loan’s interest while they are studying. You can choose whether or not to defer interest repayment while studying.
• If interest repayment is deferred, when you finish university you must repay the whole accumulated interest plus the pending capital, according to the conditions agreed when the loan was granted.
Parents can apply for a Federal Plus Loan covering the entire expense (tuition, administrative fees, books and material, accommodation and meals, transportation) for their son or daughter’s first university study. Any other government financial aid will be discounted from the sum granted. This is a federal government-guaranteed loan and it helps parents to cover their children’s studies with a low interest rate. There is no need to prove a situation of economic need, but the university selected may ask the student to apply for a federal loan in order to accept the student enrolment admission in the university. Parents need a good credit history and it will be checked that they have not unfulfilled repayment of other loans the past.
Interest rates and charges:
• Interest rates are variable but they cannot reach over 9 %. Rates are reviewed on July 1st every year.
• The federal government will apply an initial charge of 3 % and the lender granting the loan may charge up to 1 %.
• Both charges will be automatically deducted from the sum actually transferred to the borrower.
Repayment:
• You start repaying 60 days after the loan has been obtained. Paid interests may qualify for tax benefits.
• Usually people choose a fixed monthly installment, the minimum being USD 50.00.
• Loans can be issued by financial institutions or directly by the government (direct loan program).
