Selecting Federal Loan Programs
Put Government Funding First
The Federal government must be your absolute first source for college funding. Plenty of evidence exists to suggest a shocking number of student loan borrowers turn to private loans as a primary source for college funding. Maybe they forget or purposely forego filing a FAFSA, or maybe they just want a financial buffer to get them through college, or money for big expenses like computers and textbooks. Whatever the reason it is more than likely a combination of bad planning and lack of the right information.
Remember, federal loan programs first:
- Federal loans are available to almost everyone, good credit, bad credit, no credit.
- Interest rates on federally funded loans are excellent. In fact, the Stafford Loan interest rate will be reduced incrementally to 3.4% by academic year 2008.
- In contrast the interest rates on private student loans may be jacked as high as the worst credit card rates. They can be too easy to get, come packaged with exorbitant credit lines, and provide an unsafe financial situation for many borrowers.
- With federal loans you can choose from flexible repayment programs, defer loan repayment when you experience financial hardship; and consolidate loans with the federal consolidation loan program.
Bottom Line: Get the FAFSA Done and On Time
The Free Application for Federal Student Aid (FAFSA) is the application that enables you to be considered for federally funded aid programs, such as the Stafford Loan, Perkins Loan, and PLUS Loan, made available either through the Direct Loan program or the Federal Family Education Loan Program (FFELP).
Do you know that the FAFSA is the cornerstone to many other types of student aid, including state loans, college and university aid, and many scholarship and grant programs?
Here are a couple of alarming FAFSA stats:
- Nearly 8 million students fail to file a FAFSA every year.
- According to most estimates a generous portion of those would easily qualify for some sort of federal aid.
- Nearly a million of those students alone would qualify for Pell Grants1—that’s outright gift money, a no-brainer.
Don’t be one of these people: don’t procrastinate just because the form is long—it is, it will take you a good long day to fill out, but there’s no other way to do it, so just do it. And no you won’t know how much aid you qualify for until after you file it. And if you miss the deadline, you’re done for that academic year; miss the deadline and it’s not only an “oh well” for your federal loans, but you can also discount your state loans, most of your college and university aid, and many scholarship programs. See, the FAFSA is key.
Rule of thumb for FAFSA deadlines: Make sure you file your FAFSA before the deadline for the earliest program you’re applying for.
Do You Borrow Direct Loans or FFELP Loans?
There are two primary modes of access to federal student loans: Direct Loans or the Federal Family Education Loan Program. Both deliver the same products, but here are the essential differences:
Direct loans are made directly to you through the school you’ll be attending. FFELP loans are made from a student loan lender to you via your school. The federal government sanctions certain lenders to provide its loans and many schools unable to provide the proper financial infrastructure, defer to student loan lenders like Sallie Mae and Nelnet, who in turn administer the federal loans.
Most Popular Student Loan Program: Stafford Loan
Welcome to the most popular student loan on the planet, the Stafford Loan. There’s a reason for this:
- It’s available to undergraduates and graduate students.
- The Stafford comes in subsidized and unsubsidized versions.
- Packaged with low interest rates: by 2008 the Stafford Loan interest rate will be a generous 3.4%.
- Six-month grace period following graduation before repayment begins.
- And we have plenty more on the infamous Stafford…
PLUS Loans: Flexible, Affordable Aid for Parents and Grad Students
Who else, outside the swarms of undergraduate students, suffers with the cost of tuition?
- Parents of students bear significant financial burdens.
- Grad students face mounting student loans the longer they stay in school.
It only makes sense that a product would come along to aid them, as well. The PLUS loans come in two types: Parent PLUS Loans and PLUS Loans for Graduate and Professional Students.
Find out what we know about these very good loan programs.
Perkins Loan: Campus Based Aid for Poorest Students
Student loans are typically disbursed through a lender: either the federal government or a student loan provider. Campus-based aid programs like the federally funded Perkins Loan program, are different.
First, funds available for the Perkins are earmarked for only the most financially challenged students. Second, the federal government metes out Perkins Loan funds directly to colleges and universities. They, in turn, mete out their funds on a first come, first served basis to qualifying incoming students.
What’s the secret to scoring Perkins Loan dollars if you qualify?…Apply to your college early.
Don’t forget this rule: Federal loan programs must be your first choice in student financial aid.
Footnote:
1“Missed Opportunities: Students Who Do Not Apply for Financial Aid,” ACE, October 2004, accessed October 15, 2007, http://www.cherrycommission.org/docs/Resources/Participation/Student_FinancialAidArticle.pdf.
