If you plan to head to college or graduate school anytime soon, you should know the basics of the federal student loan programs. There are several ways to get money for educational expenses from the government but they aren’t all the same. Depending upon which federal program lends money to you, there can be very different terms, student loan grace period rules, interest rates and maximum amounts you can borrow.
Before you begin to shop for a federal loan, remember to try for grant and scholarship money. No matter what your area of study you can usually snag at least some amount that won’t need to be repaid. That’s the best part of grants and scholarships. Don’t expect them to cover your entire school budget, but do spend time checking to see what you qualify for. Any amount you get will help lower your overall level of indebtedness upon graduation.
Here are some of the key points to keep in mind when you decide to apply for a federal student loan:
There are Four Kinds of Federal Loans
Since the Perkins Loan Program has recently expired, there are now only four major categories of federal student loans: Subsidized Direct, Unsubsidized Direct, Direct Consolidation Loans, and Direct PLUS Loans. Keep in mind that with the exception of PLUS loans you won’t have to worry about undergoing a credit check during the application process. All the federal loans offer tax-deductible interest for the life of the agreement, no cosigners, and carry fixed interest rates.
Direct Consolidation Loans Can Save You Money
If you have several different federal student loans and find yourself struggling to make payments on different dates for different amounts, you can consolidate them all into one giant package called a Direct Consolidation Loan. These are actually quite complex arrangements and are only able to deal with federal student loan debt, not private loans. Speak with a loan counselor to see if consolidating your federal student debt will help you in the long run. It’s usually a good way for people facing financial problems to get temporary relief.
Consider Direct PLUS Loans for Graduate School
Direct PLUS loans aren’t offered to undergraduates. They are only good for post-graduate education like master’s degree programs, medical school, law school and PhD candidates. These loans do require a credit check so make sure your scores are at least average before applying. It even makes sense in many cases to take a year off between college and grad school. That way you can concentrate on bringing your credit scores up to snuff before applying for a PLUS loan.
Subsidized and Unsubsidized Direct Loans
Two other kinds of loans, Direct Subsidized and Direct Unsubsidized varieties, are the two most common ways students cover the cost of college and grad school. Subsidized loans are only open to undergraduate students and are based strictly on financial need. You don’t pay interest while in school on this type of loan. Unsubsidized loans are easier to get. You pay interest even during school years but are open to graduate and undergraduate students. Both these loans are sometimes known by their official name: Stafford loans.