STUDENT LOANS: FEDERAL LOANS
Most of the students mull over the idea of maximizing the federal loan availability first before borrowing for college through a private loan. Normally, federal loans have lower, fixed-interest rates, do not require a cosigner, and offer better repayment terms. Also, the approval process is not that tedious. In this tutorial, we will discuss the different types of federal loans offered by the US government, how these loans work, the application process, and loan repayment.
The Federal Student Aid outlines its requirements for borrowing through a federal loan seen at their website (fafsa.gov). The loan programs do not require a credit check. They only look for your family’s income for grants and subsidized loans, accumulated interest the government shoulders while you are at least a half-time student qualified for financial aid and many other instances.
Loan is given through your institution, and the college or university will issue a check or directly deposit it to your account for the difference between tuition and fees, and current semester’s loan amount. Any scholarships or payments on your tuition and fees can escalate your refund amount, which you can use for other living expenses such as groceries, housing, and transportation.
On the other hand, you may incur a balance. A national student loan borrowing limit is set every year. So if your tuition and other fees are higher than the said limit, you won’t receive payments unless a payment has been made on your account before the loan arrived. In some cases, the set limit may not fully cover tuition and miscellaneous fees; therefore, you may need to obtain additional funding like private loans. The federal grant amount cuts the limit, but the deduction is equal to the free money you received.
For seeking financial aid for private and public universities, submitting your Free Application for Federal Student Aid is the most critical action a student undertakes. The form may be filled out at the FAFSA website, university financial aid offices, public libraries, and high school guidance counselors. Details you stated on this form gives your prospective colleges or universities of your financial situation. You need to present proof of your income, as well as your parents’ income if they presently declare you as dependent on their tax return. If married, you need to give proof of your spouse’s income.
Below are the documents and information you have to provide in the form:
- Social Security number
- Driver’s license, if any
- W-2 Forms, 1099s, pay stubs, or other papers showing the amount you earned in the year before the school year for which you are applying. Present records of untaxed income, including veterans’ benefits and Social Security disability payments.
- Any federal tax return for the year before to your return. For dependents, show your parents’ tax returns. For married couples who did not file jointly, prepare your spouse’s return as well.
- Asset information (investment and bank account statements), aside from mortgage and business or farm ownership details. You need not to show these information if the adjusted gross income is $50,000 or lower for parents of dependent students or independent students.
Types of Federal Loans
Perkins Loans. Such loans are the best ones a student can get if you are eligible. Need-based and highly limited, the school receives a fixed amount of money from the government and is responsible for disbursing these loans according to income stated on the form. It has various loan forgiveness programs for getting into some public service jobs following your graduation.
Parent PLUS Loans. Parents can secure unsubsidized, fixed-rate loans to help financing their children’s education. These loans are distributed through private lenders and from direct lending program. Eligibility is validated by the details indicated on the student’s FAFSA form. Parent PLUS loans are somewhat different from other loans since it has a slightly higher loan origination fee. Interest rates are also slightly higher for loans directly provided to student. But parents are not qualified for deducted payments based on their yearly income.
Subsidized and Unsubsidized Stafford Loans. There are two ways a student can do to pay for their own education. A subsidized loan is where the government pays the interest until you graduate, as long as you retain the half-time status, which is at least six credits per semester as an undergraduate or four credits as a postgraduate student. On the other hand, unsubsidized loans accrue interest while at school. However you need not to settle these until six months following your graduation on either of these loans, except in consolidation.