Government or Federal Loans
Government student loans are guaranteed by the U.S. Department of Education. The government loan program is more commonly know as the FFELP (Federal Family Education Loan Program). Government or federal loans are not credit-based (with the exception of the PLUS loan). For these loans, interest rates are usually lower than private student loans, but they tend to offer modest annual loan limits. Students must fill out the FAFSA to qualify for these loans. Unfortunately, government loans alone may not cover the total cost of education for your school and you may have to find other sources of funding such as a private student loan.
Most private student loans will encourage prospective customers to apply for federal student loan before applying for a private student loan or other alternative student loans. Federal loans are often less expensive and offer the widest variety of repayment options. If you are unable to meet your total cost of education based on these sources alone, you should research potential private student loan lenders and choose the loan that best suits your needs. Remember to borrow only what you need!
FFELP Program Loans:
Subsidized Stafford loans are offered to students with a demonstrated financial need, generally requiring a low family income. The government makes the interest payments while the student is attending college.
Unsubsidized Stafford loans are offered to most students. The government does not pay interest for the student. Instead, the interest accrues and is capitalized into the total loan amount. The student may choose to pay the interest while in college or defer payment until after graduation.
Parent Loans for Undergraduate Students or PLUS loans are always unsubsidized loans. The parent takes out the loan in his or her own name and is responsible for loan repayment. Parents are usually able to borrow much more than the student, but the interest rates are also higher than federal student loans made to the student. There is no grace period on a PLUS loan and payments start immediately.
A Perkins loan is a low-interest loan for undergraduate and graduate students who demonstrate a financial need. The school is actually the lender and will either pay the student directly or credit the student’s account. The loan is made with government funds with a share contributed by the school. Repayment is made directly to the school.
Besides federal loans, there are other types of government student aid available for students. These sources of aid do not have to be repaid. To qualify for these types of aid, students must also fill out the FAFSA.
Federal grants are awarded to students with financial need and do not have to be repaid (unless a student withdraws from school). There are four types of federal student aid grants: the Federal Pell Grant, the Federal Supplemental Educational Opportunity Grant (FSEOG), the Academic Competitiveness Grant, and the National SMART Grant. After you fill out the FAFSA, your award letter will tell you which grants you qualify for and for how much. See grants.
With federal work-study, students earn money while attending school. Jobs can be on or off campus. There is no annual minimum or maximum award amounts. Work-study programs are typically included in the financial aid package and outlined in the award letter.
Most states also provide financial aid to students in the form of grants. You should check with the financial aid office at the school you plan to attend or visit your state’s department of education website to find out about the different state grants that may be available to you.
