By: Yara Zakharia, Esq.When looking toward financing a college education, the costs may seem astronomical and hardly affordable, but a federal student loan can be just the student financial aid you need to get through school. A federal student loan can cover either part or all of a student’s college fees. A federal student loan is generally offered to students to help them cover the costs of professional education. A major benefit of using a federal student loan for your student financial aid is that a federal student loan will usually have lower interest rates than other types of loans. For this reason, repayment of a federal student loan can be a great deal easier for a recent college graduate, or their parents! Student financial aid can be obtained from a variety of sources including federal student financial aid scholarships, athletic scholarships, student financial aid grants, a federal student loan or private student loans.
A federal student loan comes in many forms and has several benefits. As mentioned before, the interest rates associated with a federal student loan are generally low and repayment schedules are flexible. Once a student has dropped below a half-time enrollment status, they will have a grace period during which no payments have to be made. This grace period for a federal student loan is usually six months and allows time for the student to set-up their repayment plan.
Different types of federal student financial aid offer different benefits for the borrower. A federal student loan can include Perkins Loans, Stafford Loans and PLUS Loans. The Perkins loan is a need-based federal student loan that is usually offered to students demonstrating financial need. This particular federal student loan offers a fixed interest rate of 5% in addition to a nine-month grace period, which differs from the more common six-month grace period. The Perkins loan is also considered a “subsidized” federal student loan. This means that interest does not begin to accrue until the borrower begins repayment on the loan. The Stafford federal student financial aid loan is also a type of federal student loan, but it differs quite a bit from the Perkins student loan as it can be obtained through private lenders as well as through the Federal Government. In addition, a Stafford federal student loan can be subsidized or unsubsidized and have a dual structure interest rate. This dual structure interest rate simply means that, while the student is attending classes in school and during their grace period, the interest rates are lower; afterwards, the interest rates increase again. A PLUS federal student financial aid loan is made directly to parents, though graduate students have recently been made eligible for this type of financial aid which was once strictly a parent student loan. The federal student loan amounts that can be borrowed are generally much higher for the PLUS loan; however, the borrower is responsible for beginning repayment immediately. In addition, the interest rate on this federal student financial aid has recently been raised to a fixed 8.5%.
For those students and parents who obtain federal student financial aid or a federal student loan and are nearing repayment, they may want to think about federal student loan consolidation. Federal student loan consolidation is something that can be of great help to borrowers as it combines all federal student financial aid, federal student loan amounts into one, larger, loan amount. Federal student loan consolidation is beneficial as it simplifies the repayment schedules and provides a single interest rate for the borrowed amount. Federal student loan consolidation can also help students with poor credit. The way federal student loan consolidation works, by combining loans and providing one interest rate to keep track of, can sometimes reduce the total sum to be repaid over the life of the loan. Another thing for students to be aware of is that all interest paid on student loans is tax deductible!
