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Itīs actually an amazing thing that over 60 percent of financial aid on education on average comes is in the form of federal education loans.
Categorized in the aided category of Ļself-helpĻ, Federal education loan is a financial aid where you become the ultimate source of fund by repaying the amount borrowed, interest and loan fees.
Guaranteed and Subsidized by the Government
Best thing about education loan is that itīs largely sponsored and guaranteed by the federal government, and so if student is unable to pay back, government reimburses the lender. Another good thing about federal education loan is that it has relatively low interest rate compared to regular retail loans and you only repay after finishing college. If you choose Stafford loans, you can even get subsidy from government. Here, the government pays for the interest that has mount up on the financial aid while you are in college.
Different Federal Education Loan Programs
As a college student, you can enjoy any of the three main packages that is Stafford, PLUS or Perkins, in which the federal government loan program is available.
Stafford Loans: This loan lays down certain annual loan limits, depending on the type of student you are, and on basis of this you get the financial aid. If itīs based on need, with interest paid by the government while you are in college, then its subsidized Stafford loan. But if its unsubsidized, that is, not based on need; the interest accrues while you are in college. But let me tell you, that in both cases, the maximum interest rate is 8.25%. In addition, you get 4% maximum loan-processing fee, and a six-month grace period too after you graduate and before you start repaying the loan.
$23,000 as dependent and $46,000 as independent is the highest amount of financial aid you can borrow in this program for your entire undergraduate education. If you are a dependent freshman, you can borrow $2,625, which can rise to $3,500 in your sophomore year and $5,500 in each of your junior and senior years. But in case you are an independent freshman, you can borrow up to $6,625 of which $2,625 can be subsidized, and again in your sophomore year you can get $7,500 ($3,500 of which can be subsidized), and you can borrow $10,500 in each of your junior and senior years (of which $5,500 can be subsidized).
Federal PLUS Loans
A Federal PLUS loan is the second form of federal education loan. It can be termed a Parent Loan for Undergraduate Students because this non-need based loan is available to those students whose parents are found credit worthy to qualify for it, in case you are dependent. The loan-processing fees of plus loan can go up to 4% but unlike Stafford, the interest rate here cannot exceed beyond 9%. PLUS loans can be either FFEL, which are funded by outside lenders or Direct, where government funds the financial aid. The annual loan limit sometimes crosses the total college costs for the year, minus any other aid received. Parents who use plus to fund their EFC (expected family contribution) must remember that they have to pay back within 60 days of receiving the second of two annual payouts of funds as interest starts accumulating immediately.
Federal Perkins Loans
College provides Federal Perkins loans of up to $4,000 a year for five years with only five percent interest rate to students with exceptional need. You don?t need to repay the federal education loan until nine months after you graduate or leave school. There is no loan fee added to this financial aid and like other federal loans you have up to ten years to pay it off. Another interesting fact is that, if you go into certain jobs, like nursing, law enforcement, Peace Corps and teaching which are low-income areas, the loan is even forgiven.
Conclusion
To be precise, a Federal education loan provides various repayment plans on financial aid, and allows making fixed payments each month. Even if you are tied up with several loans at one time, you may consolidate them at a lower interest rate and make one convenient payment each month.
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