Federal student loans are low-income loans provided directly from the U.S. Department of Education for students in order to help in covering tuition expenses. Federal loans are offered through Direct Loan Program (DLP of FDLP).
It’s important to notice that before July 2010 there was also FELP (Family Education Loan Program). According to this program federal loans were not offered directly from the U.S. Department of Education but were offered through third-party private institutions like banks.
However after law legislation this program was eliminated. Today all federal loans are given directly from the government. It means that no private loans are participated in the funding process.
Federal student loans vary depending on the types of lenders and the aim of funding. There are three types of federal loans: Stafford, Perkins and PLUS loans. Each type has own features, strong and weak sides.
A Perkins loans is a low-income loan designed specifically for needy students. “Neediness” is meaning that students do have financial need. Their family is not rich, have low income and not much money to spend. In this case students can qualify for a Perkins loans and repay it later after graduation. This type of financial aid is popular but in fact not many people receive funding because the number of awarded students is strictly limited. In order to apply for Perkins loans it’s necessary to fill out Free Application for Federal Student Aid (FAFSA). There are two ways of doing it: using web and by printing and sending via mail.
A Stafford loan is the most popular loan type. More and more students today qualify for this type of student aid and receive enough funding for college. Stafford loans are coming in two types: Subsidized and unsubsidized.
Subsidized Stafford loans are designed specifically for student with financial need. This type of loan is similar with Perkins loans. The difference is that Perkins loans are for students with exceptional financial need. Bu the term “subsidized” the government means that it pays the interest for a borrower. So, a borrower owes only the main sum he must pay back. In other words there is no interest paying involved.
Unsubsidized Stafford loans are offered for student regardless financial need and almost all students qualify. However the government does not “subsidize” this loan by paying the interest. In this case, a student has to pay the loan plus the interest that can accrue.
PLUS loans are low-income loans offered for both graduate students and parents of dependent students. There are eligibility requirements for potential borrowers. One of the main requirements is to have a good credit history. This type of federal student aid is dealing with credit-based criteria. It means that a borrower must have good credit history or a credit-worthy cosigner. A student could not qualify if he doesn’t meet requirements. This type of federal loans is not cared about financial need of borrowers. It doesn’t if a borrower has low-income or financial troubles. Only a borrower is responsible for it. So, some risk involved.
In the end it’s necessary to point out that there are main types of federal financial aid: Stafford, Perkins and PLUS loans. Each loans has own features, advantages and disadvantages and it’s necessary to know all details of each one in order to be well informed and have an opportunity to apply effectively.