Most people thinking about enrolling in higher education these days weren't even born when Federal Financial Aid Programs were instituted! In fact, their parents were probably not even around yet!
But Federal Student Loans are a huge part of our nation’s history of higher education, and one of the big reasons the American economy was able to enjoy such a boom after World War II. The GI Bill (Serviceman’s Readjustment Act) was implemented in 1944 to provide opportunities for Veteran’s to pursue education and training – not just to increase the number of competent employees but to later respond to the Soviet Union’s space program and the need for scientists and people with technical expertise.
Though the goals of the students receiving Federal Student Loans have diversified significantly over the decades, the philosophy of the Loans has not changed: they exist specifically to assist students and their families with the high costs of pursuing post-high school education.
Different financial needs require different loan options, and indeed there are several. The main types are Federal Stafford Loans, Federal Plus Loans and Federal Perkins Loans.
Federal Stafford Loans are awarded based on financial need (not credit history). Stafford Loans can be obtained directly from the government, or from a bank or credit union.
There are three categories of Stafford Loans: subsidized, unsubsidized and additional unsubsidized.
“Subsidized” means that the government pays the interest on the loan while a student is in school or during deferments and grace periods. Therefore, if you borrow $5,000, you will start paying $5,000 (only) plus interest when repayment starts, not accrued interest since you took out the loan.
An unsubsidized Stafford Loan is for students who might not qualify for other types of aid, or who might need more money in addition to other forms of aid. “Unsubsidized” means the interest does accrue over the time the borrower is in school; therefore, the student will pay not just the principal but also the interest that capitalized on that principal over his or her school term.
“Additional Unsubsidized” Stafford Loans are for borrowers that qualify as independent students (no family contribution).
Federal Plus Loans are slightly different than Stafford Loans or other Federal loans. They used to be only available to the parents of children attending undergraduate school, but now they are available to certain students as well, but only those in graduate school and only those that have exhausted all other forms of Federal financial aid. Also, unlike other forms of Federal aid, the Plus loans are contingent upon a borrower’s credit history.
Federal Perkins Loans don’t start to accrue interest until nine months after a student graduates or drops below half-time enrollment. Perkins Loans funds available are very limited, which means the loan amount will likely be much lower than other ones available. Though all Federal loans are based on need and have low interest rates, the Perkins is awarded only to those with extreme or dire financial needs.
The great thing about Federal Student Loans is that the application process is so streamlined. A borrower-candidate fills out just one preliminary form that automatically applies his or her information to all Federal Loans available. All a potential student has to do is fill out a FAFSA (Free Application For Student Aid), via paper or online channels, and the government does the rest.