Take Advantage of Federal Student Loans
Direct Loan and FFEL Programs
There are two types of Federal student loans available to college bound students:the Federal Direct Loan program and the Federal Family Education Loan program. Both are key components of a successful financial aid strategy.
Federal student loans should be the very first step you take in the financial aid process:
- The Direct Federal Loan program is administered through the U.S. Department of Education who also acts as lender for the program.
- The Federal Family Education Loan Program, or FFEL, includes the Stafford Loan (in both subsidized and unsubsidized versions), the PLUS Loan and Federal Direct Consolidation Loan. FFEL makes Federal loans possible through private lenders, such as Sallie Mae and Nelnet. When private lenders work with Federal college loan programs more students have access to post secondary education.
Federal student loans are guaranteed by the government, which means if you default on the repayment of your student loan the government will back the lender financially for the loss. Federal loans also offer some of the lowest interest rates available making them more affordable for students struggling to find the money to attend college or university. So, what sets Federal student loan programs apart from private lenders and other types of loans?
Federal Loan Interest Rates
Because Federal loans are funded by or guaranteed by the Federal government their interest rates are significantly lower than student made by private lending institutions. The FFEL program allows private lenders to offer students loans for college while regulating interest rates and other loan features that ensure borrowers are treated fairly and consistently.
Flexible Repayment Plans
Unlike private student loans Federal loans do not come due for repayment until 6 to 9 months after a student graduates or leaves college. This grace period is designed to allow students to find their feet financially before repayment commences. The amount of a students monthly payment and the duration of the payment schedule will be determined when the loan is initially approved. Federal Direct Loan payment plans include Standard, Extended and Graduated. Direct PLUS Loans for Parents are due for repayment as soon as the loans are full disbursed.
How To Apply for Federal Loans
The key to securing a federal loan for your college career begins with the FAFSA. You will need to fill out and submit the Free Application for Federal Student Aid before the yearly deadline. When you file a FAFSA you are automatically considered for all Federal loans, grants and scholarships depending upon the financial information you provide. Almost every student qualifies for Stafford Loan aid in either a subsidized or unsubsidized loan.
What happens once you've filed the FAFSA?
The follow-up to the FAFSA is your Student Aid Report or SAR. This report is generated by the government from the information you provide in your FAFSA. A copy goes to all colleges to which you've applied and this information will help determine the nature of any loans, grants or scholarships you may be offered.
When you have an award letter or aid package in hand from the college you've chosen the next step is to choose a financial aid lender. In the past colleges and universities provided students with Preferred Lender Lists—these are out. You are free to choose your own lender for your Federal loans.
Federal Student Loans are Binding and Real
If you are under the impression that student loans are somehow less serious or not a big deal, you are mistaken. It's important that you take the loans seriously. Although it may be years before you begin repayment your financial future depends upon your diligence following repayment requirements and adhering to all of the loan terms.
Federal student loans are just as serious and just as binding as private lender loans. It is important that you take your loan seriously and give due attention to the requirements you will face as a borrower before agreeing to the final loan agreement. Although it may be years before you begin your repayment schedule your financial future depends upon your diligence in following payment requirements and adhering to all of the lenders terms.