Loans are a type of financial aid that must be paid back. There are three types of student loans. Federal Loans given to students, federal loans given to parents and private loans.
The first type of loan is the loan given directly to students. They include Stafford loan, Federal Family Education Loans, Ford Direct Student Loans, and Federal student loan consolidation. These loans are directly available to the students and are available as subsidized or unsubsidized loans.
These loans should be paid after graduation. The grace period for both kinds of student loans is 6 months that means that a student has a time of six months after graduation during which he is exempted from paying anything.
If a student’s credit hours are less than half then his grace period is over and he has to start paying the loan. The main difference between subsidized and unsubsidized loans is that one is exempted from paying an interest on a subsidized loan until after the graduation.
The credit limit for undergrad freshman is 3500$ and it reaches the limit of 8500$ for graduate students. This limit increases to 12500$ per year for unsubsidized loans.
The second type of student loan is the loan given to parents. These are also known as PLUS loans. These loans have a much higher limit. This helps in meeting any gap in the education cost but the payments start immediately as there is no grace period. Parents are solely accountable for the payment of the loan. The interest rate on the PLUS loans is 8.5%.
The third type of student loan is the loan given by private banks and finance corporations. These loans have a limit higher than any federal loan. These companies provide the best financing terms and condition. Some companies even provide a grace period of twelve months. There are two types of private loans: direct to student/parents or through school channels.
The direct to consumer loans have a higher interest rate but are quick to process while the loans borrowed through school channels are slow to process but have a lower interest rate. The loan rate for private loans is higher than federal loans. The overhead charge depends upon the credit scores of a person.
One added advantage of private loans is that foreign students are also eligible for the loans but an American resident co-signer is also needed. They also charge a fee for the loan. If the credit score of a person is high then the fee charge can be omitted and the interest is also low. A statement of APR (Annual percentage Rate) contains all possible types of fees and it is provided when the loan is granted.
It should be used to compare the overall interest and fee when comparing the loans. Some federal and private student loans can be omitted if a student declares himself bankrupt and meets some conditions but these conditions are hard to meet.
Nowadays strict laws have permitted the loan companies to impose heavy fines on a bankrupt person. They are also punished in different ways like withholding of professional degrees or imposing heavy fines on them.
By: Luigi Castagna
A student who is awarded one of the direct student loans needs to be attending a school that participates in the Direct Loan Program.
That student must first complete a FAFSA, and then he or she must sign a master promissory note (MPN). If the loan recipient then needs to talk with a counselor about the loan, those services can be obtained at the Direct Loan Servicing Site.
Services Available to Holders of the Direct Student Loans
At the Direct Servicing site, the holder of a direct loan can set-up an account. Using that account the holder of a direct student loan can view the record of his or her payments.
That site also contains records on the balance owing for each of the many student loans.
Anyone who has been awarded one of the direct student loans can use the Service Center to request use of electronic correspondence for the sending of bills and other information. Loan payments can be made free of charge from the Service Site.
Payments for any of the student loans can be scheduled as much as 6 months ahead of time.
The Various Types of Direct Student Loans
Some students with a direct loan have a subsidized Stafford Loan. The subsidized loan has an interest subsidy. All students awarded those direct loans can count on the government to cover their interest payments while they are still in school..
Not all Stafford Loans are student loans, and not all direct student loans are subsidized. Where students do not show tremendous need, the government might award an unsubsidized Stafford Loan.
Such unsubsidized loans do not come with an interest subsidy.
PLUS Loans represent a third type of direct student loan. PLUS loans are low interest loans for graduate students and parents. As with the other student loans, the application for the PLUS Loans entails submission of a FAFSA and a MPN.
Factors That Determine the Size of the Direct Student Loans
Not every student who receives one of the direct student loans gets the same amount of money. The amount of money awarded to the recipient of a student loan depends on three different factors.
The school costs will dictate to a large extent the size of the student loan. The government will also adjust its loan amount to account for any other aid that a student might expect to receive.
Finally, the distribution of funds for the direct student loans depends on the expected contributions from each student’s family.
After the Department of Education has examined those three factors, then it will provide a needy student with funds that should adequately cover his or her tuition costs.
Most students can get-by with loans of $8,000; they then obtain added money from additional on and off-campus sources.
By: Martin Haworth
Direct student loans are federal government loans provided through the William D. Ford Federal Direct Loan Program. These types of loans are designed to help students who have graduated from the high school and are continuing their education in colleges, universities or trade schools.
Direct student loans are part of the federal student aid programs administered by the US Department of Education. These loans are not offered through private lenders or companies. The loan agreement is between the student and the US Department of Education, without any agencies as a middle man.
Students that want to apply for direct student loans must complete a Free Application for Federal Student Aid (or FAFSA) over the internet and submit all required information and documentation. In addition each student will also have to complete a Master Promissory Note (or MPN). MPN is a legal document that explains the contract between the student and the Department of Education. It also outlines how the loan will be repaid and the specific terms and conditions of the loans.
After awarded with one of the direct student loans, you should sign up and use the Service Center. It provides you all the information of your payments and allows you to view the records on the balance you owe. If you need one, you can also obtain a counselor service from a Direct Loan Servicing site.
To be eligible for direct student loans, a student needs to attend the school that is participating in the direct loan program. Also, the student must be enrolling for at least on a part-time basis.
Types of Direct Student Loans
The two most common direct student loans are: (i) subsidized Stafford loan and (ii) unsubsidized Stafford loan. The subsidized loan has an interest subsidy and paid by the Government. Students who are awarded don’t need to worry about paying interest and hence can concentrate on his or her study in full.
Not all students will receive subsidized direct loans (Stafford loan). Only those students with very few resources and with greater financial needs are qualified for subsidized loans. Students who are dependent, or have parents that are able to help pay for their schooling are usually given the unsubsidized direct loan which doesn’t have an interest subsidy.
For graduate students who are considered independent or have families of their own to support, or no living parents to assist with educational funding can apply for PLUS loans. PLUS loans are low interest loans for graduate students and parents. These loans are under the same criteria as the Stafford loans, you’re required to complete and submit FAFSA and a MPN. Typically direct student loans have a limit on the total amount. Most students manage to get by with loans of $8,000.
Direct student loans have a fixed interest rate that is set every July 1st. There is also a loan fee that can be up to 4%. This fee is usually used to offset the cost of the programs or services.
By: Yvonne Suzannah
