Federal School Loan
Federal school loans make up the largest source of borrowed money for education. Although they are lended through private financial institutions, the federal government has regulations which set the interest rate and guarantee the loans. The result is a secure, low risk loan with a generous grace period for repayment.
Typically federal school loans have a six month grace period following graduation where the borrower can but doesn’t have to make payments. This is intended to give them an opportunity to find a job and get themselves financially situated. In the event you need more time, most lenders are understanding and will give you an extension on your grace period.
Different Types of Federal School Loans
There are a few different federal loans that are available to college students. The requirements to receive the loans vary, but they are all regulated by the federal government. The following section explains more about the different loans.
Federal Stafford Loans
Stafford loans are the most common form of federal education loans. They are fixed-rate, low interest loans available to undergraduate students attending school at least half-time (approximately 6+ credit hours per semester). They do include a small 2% fee to obtain the loan
All students are eligible for Stafford loans provided they are U.S. citizens or meet eligibility requirements as non-citizens. There are no credit checks prior to receiving the loan, which makes it easy for those with poor credit histories to still attend school.
Very flexible repayment plans, including no prepayment penalties, are also among the reasons why Stafford loans are so popular. The Stafford loan grace period is 6 months, beginning immediately after graduation or following a drop to less than half-time enrollment.
Additionally, if extenuating circumstances occur and you are unable to repay your loans, there are a number of deferrment options that will either extend your grace period or temorarily stop or reduce your payments until your situation improves.
Federal Perkins Loans
Perkins loans are also low interest federal loans. These loans are available for those who can demonstrate exceptional financial need. Similarly to Stafford loans, Perkins loans require you to be a U.S. citizen or qualified non-citizen, and they also require the student maintain a minimum of half-time enrollment in a degree program.
Perkins loans differ from Stafford loans slightly in that they require continued academic progress. In other words, they won’t continue to lend you money if you’re repeatedly failing courses or getting low grades.
There are no fees for Perkins loans and they sometimes provide a longer grace period than the standard six months given by the Stafford loan.
Federal Parent PLUS Loans
Parent PLUS loans are low interest student loans that are taken by parents of undergraduate students. The student must still be a dependent of the parents for them to be eligible.
In order to receive a Parent PLUS loan the parents must be U.S. citizens or meet non-citizen eligibility requirements. They also must undergo a credit check before they’ll be given any money.
Other than the required credit check, qualifying for Parent PLUS loans is easy because there are no income or collateral requirements. Parents may borrow the full cost of education minus any other loans, grants or scholarships.
Parent PLUS loans do carry a fee from the federal government. The fee can be up to 4% of the total loan. Depending on the specific circumstances parents may be able to deduct the loan interest from their taxes. Check with your accountant to see if you’re eligible for those deductions.
