The cost of tuition today is steadily increasing, and with more students going to school, scholarships and grants can be hard to come by. Federal student loans are a good alternative to private student loans and can take much of the stress out of paying for college.
What are federal student loans?
Federal student loans are awarded to students by the Department of Education. There are a few different types of federal loans, so when looking for financing options, look at all the different kinds of loans available to you.
How Do I Get A Federal Student Loan?
In order to be granted a federal student loan, you need to submit the Free Application For Federal Student Aid. After this has been submitted, your school will review your application and send you your award letter. This will contain scholarships, grants, work-study, and federal loans you have received.
Types of Federal Student Loans
- Direct Subsidized Federal Student Loans are awarded to students who demonstrate a financial need for low cost loans. A subsidized loan means that you will not be responsible for any interest incurred during the deferment period, during which you are in school. The interest rate for direct subsidized loans is currently at 3.4%. Additionally, the borrower (the student) does not need to pass a credit check in order to be eligible for this loan. Due to the low interest rate and the lack of interest incurring makes this type of loan the most preferable loan to take out to finance your education.
- Direct Unsubsidized Federal Student Loans are awarded to students regardless of their financial need. Interest will accumulate on an unsubsidized loan during the deferment period. The interest rate for direct unsubsidized is currently at 6.8%. A credit check is not required for this loan.
- Direct PLUS loans are loans that can be taken out by parents of undergraduate students to help pay for the cost of college that is not covered by other financial aid. Currently, the interest rate of these loans are capped at 7.9%. This is the only federal loan that the borrower must pass a credit check to qualify for.
- Perkins loans are offered to students with exceptional need for additional financial aid. These loans do not collect interest during the deferment period of the loan. The interest rate on these loans is 5%. These loans are not offered by every school, so check to see if your institution offers these loans. Again, the borrower is not required to pass a credit check in order to qualify for a Perkins loan.
Why Federal Loans?
Federal loans are a good alternative to private student loans because the interest rate on the federal loan tends to be less than the interest rates on private student loans, which sometimes have an interest rate of up to 12%. Federal loans also can be eligible for forgiveness, whereas private student loans are usually not, and also not eligible for bankruptcy if a borrower is in that position.