Federal Student Loans

Federal Student Loans

Federal student loans are a government-sponsored type of student loan that allows students to borrow money from the federal government to attend college. Many people have gone to college using funds from federal student loans, and many say they would not have been able to attend college without it.

That being said, many people don’t realize how much the interest rate will add up over time. It is important that students use all of the resources they have available to compare rates of student loans and realize the responsibility they have to pay it back once they are finished with their education.

Most colleges require that students learn about federal loans before agreeing and signing for the finalization of their loan. But some students do not think about it until it comes time to pay their first payments.

The first thing someone should do when they are considering applying for a federal loan is to look at the various types of federal loans and compare the interest rates and pros and cons of each. Below is a short list of some of the most popular student loans.

1. Direct Subsidized Federal Loans

The best part about this type of loan is the fact that the federal government pays the interest when a student is enrolled half-time in school. The interest rate is usually lower than many other types of loans (around 3.76%-5.31%) This can vary, depending on when the loan is received and how long the borrower has to pay it back.

2. Direct Unsubsidized Federal Loans

This type of federal student loan does not require financial proof of need like a subsidized student loan does. This means most people will qualify for it. However, interest does not stop if the borrower returns to school and they will not pay it as they will with subsidized loans.

3. Direct PLUS Loans

A credit check is required for this type of loan and some borrowers may not qualify if their credit is less than average. This is similar to taking out a loan for a house. The bank needs some form of collateral or assurance that they will get their money back. The more someone can provide proof that they are a low-risk investment, the more likely they are to get the loan.

4. Parent PLUS Loans

Parent PLUS loans were developed for the purpose of allowing parents to obtain help in sending their kids to school. As long as the student is an undergraduate, they should qualify for this type of loan. This type of loan is intended to be paid as the student attends college so that it will not be carried over past the time in college.

5. Direct Consolidation Loans

These types of loans allow the borrower to move all of the smaller loans into one large payment to consolidate them together. It may make paying easier since the student will only have one bill, but it is not for everyone and interests may be higher over time. This type of loan is usually borrowed after students have started paying back their loans and they run into trouble paying it. It is a type of refinance loan that combines all of the student loans into one payment.

Learn the ropes about the various types of federal loans that are available today and plan a way to pay it back over a reasonable amount of time. Don’t sign until the student is sure they will be able to do this.

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