Student Loans

Federal Student Loans

These loans generally have competitive interest rates as they also do not demand collateral or credit checks, unlike other types of loans. These kinds of loans are also flexible when it comes to repayment terms and deferment options. The two major examples of student loans are the Stafford Loans and the Perkins Loans.

Stafford Loan

Main federal student loan is called Stafford Loan. It has two variations: the Federal Family Education Loan Program and Federal Direct Student Loan Program. The first type of loan is given by private institutions like banks, credit unions, savings and loan associations but the debt is assured against default. This is done due to federal government. On the other hand, the Federal Direct Student Loan Program are financially supplied by the government and is given directly to the parents and students through a Direct Lending Schools.

Your Stafford loan can either be subsidized with the government paying for the interest as you are still studying. In order to qualify for such a loan, you need to show that your family's income is inadequate. Most of the Stafford Loans that are subsidized are given to students whose family's AGI (annual gross income) is below US$50,000 and 10% or less have AGI above US$100,000. Of course, the eligibility for subsidy is determined by the school to be enrolled or currently enrolled in.

On the other hand, completely unsubsidized Stafford Loans require you to pay the full interest but you can postpone the payment procedures until you graduate. Payments can be deferred for as long as six months after graduation. The standard repayment term is usually ten years but it is easy to get an extension on the repayment terms if you will consolidate your loans. All students are eligible if they apply for the Stafford Loan which are unsubsidized.

The borrowing limits for the Stafford Loan is largely determined by factors of dependency or independency, whether you are an undergraduate or a graduate student and by what year level you are currently enrolled in. Also, the loan limits the amount you can borrow annually and they also measure your maximum lifetime limit.

As of 2009 until 2010, the benefits of the Stafford Loan are as follows:

• 5.60% Interest rate
• Increased borrowing limits - US$2,000 and above
• No payments while enrolled in school
• Acceptance is not based on credit

Requirements:

• Submit a FAFSA (Free Application for Federal Student Aid) form
• Enrolled or plan to enrol for at least half the time

Perkins Loan

This is a campus-based program which is awarded to those which show exceptional financial need. The school acts as the lender using a limited pool of funds provided by the government. Therefore, the loan is provided by the government 100% and the school does not spend at all. This loan is considered to be the best loan program provided by the government.

One of the major benefits of this loan is the possibility of cancellation through working in certain positions in the public, military, or teaching service employment. Another benefit of the Perkins Loan is that it is completely subsidized by the government from the beginning of the loan up until nine months after graduation. There are no origination or default fees and the interest rate is a mere 5.00%.

The exceptional financial need of the student is determined by the U.S. Department of Education, calculated using a formula which was established by the Congress. Of course, the elements in this formula are the income of the parents, household size and the number of family members also attending postsecondary schools. Then the loan is awarded but it is also subject to limits lower than that of the Stafford Loans.