Florida Braive

In a previous article, it was discussed in general what student loans are, the reasons why students opt to get these types of loans and a brief overview of these loans. In this topic, we will be discussing in depth one of the two main types of student loans, and that is federal loans.

As a brief review of federal student loans, we have said that this type of loan is applied for when a student ventures into the higher education. Often these students aim to study in lengthy programs such as nursing, pharmacy, law or even medicine. The loan itself covers for almost everything the student would need to survive college ranging from books, lodging to transportation. Like every other loan, this also has to be repaid with interest. Often the repayment program is flexible once the student has graduated.

Now these loans in the United States were first offered to students entering college in the 1950s under NDEA or the national Defense Education Act. However, these loans were only geared towards students studying for specific types of courses such as engineering and science. It was only in the 1960s that student loans were extended broadly under the Higher Education Act.

Before the year 2012, federal student loans were only of two types, namely direct loans (loans created and funded by the United States Department of Education) and guaranteed loans (created and funded by private companies but guaranteed by the federal government), however the latter was dropped in 2010 and replaced entirely by the direct loans. These loans are either subsidized or unsubsidized by the government through the Department of Education, depending on the applicant’s financial need. Notably, undergraduates receive lower interest rates comparing to graduate student but the latter could borrow more money comparing to the former. In terms of repayment, the borrower is given a grace period (meaning no payments are due) of six months of graduation or the borrower becomes a “less than half time” student.

The loans distributed also varies per year level or if the student is dependent or independent. As of July 1, 2008 these are the loan distributed for each:

Dependent undergraduates are given the following loans:

• Freshmen undergraduates receive $ 5,500 per year
• Sophomore undergraduates receive $ 6,500 per year
• Junior and senior undergraduates as well as students who are enrolled in teacher certification or preparatory coursework for graduate programs receive $ 7,500 per year

Independent undergraduates receive much higher loans:

• Freshmen under graduated receive $ 9,500 per year
• Sophomore under graduates receive $ 10,500 per year
• Junior and senior as well as students who are enrolled in teacher certification or preparatory coursework for graduate programs receive $ 12,500 per year

Now there are two big types of federal loans and they are the Stafford Loan and Perkins Loan.

The Stafford Loan is also divided into two variations, namely, the Federal Family Education Loan Program or FFELP, in which it is provided by private lenders like banks but they are guaranteed against default by the federal government, and Federal Direct Student Loan Program or FDSLP, in which these are given by Direct Lending Schools and provided directly by the US government. This loan is either subsidized or unsubsidized however, repayment for both loans begins after six month after graduation or when a student drops below half-time enrollment. The standard repayment term is 10 years.

The Perkins Loan is given to graduate and undergraduates who are in dire need of financial aid. This can be described as a campus-based loan program in which it is the school who acts as the lender with the use of the limited funds given by the government. It is noted that some regard this loan as the best student loan to be given as it is a subsidized loan with the federal government paying the in-school and 9-month grace period. The interest rate is set to only 5 per cent. Like the Stafford Loan, its repayment term is set to 10 years.