Government guaranteed student loan
Being a student, at times it can be quite a task meeting your expenses in and out of your institution. For student s who don't have their own source of income and whose parents cannot afford to pay for all your numerous needs such as college fees, hostel / accommodation fees, book and other study material costs, insurance costs etc.
To help you out in these situations, there are student loans available both in private sector and in government sector. We will discuss here about the different types of federal government guaranteed loans available to the student s as per their respective needs and situations.
Federal government guaranteed loans: there are several programs available which are guaranteed and sponsored by the federal government towards providing financial assistance to student s for pursuing their education. They are briefly discussed below.
1) Federal Stafford loans: Stafford loans are easily accessible and a low-cost loan option with US Federal government guarantee, which provide financial aid to meet your college, university or trade school needs.
Rate of interest: the interest rate for the Stafford loans as set by the federal government in July 1, 2006 is 6.8%. The Stafford loans are subject to an origination fee, which will be deducted from your loan amount. This fee will be 1.5% of the loan amount, from July 1, 2007 up to June 30, 2008. Also, a federal default fee of 1% is assessed by the person who guarantees the loan.
The applicant should be a citizen of USA or an eligible resident. He she should be enrolled in a college or university at least half time, and should not have any defaults on federal student loans.
Terms for loan approval: two forms of Stafford loans are there namely the Unsubsidized and the Subsidized federal Stafford loans.
a) Unsubsidized Federal Stafford loan
For the Unsubsidized Federal Stafford loan, the eligibility is not based on the financial need as determined by the Free Application Federal student Aid (FAFSA). Also, there is no need for any payment while you are in-school, though you will have to account for all the interest that accumulates on the loan for the period you are in school.
You have to complete the FAFSA
b) Subsidized Federal Stafford loan
The US federal government pays the interest while you are in school, during your 6 months grace period, after the completion of your program and in periods of approves deferment.
The eligibility will be based on the financial need as determined by FAFSA.
The loan amount will be sent to your school, mostly in 2 installments. Stafford loan funds must be used initially for you fees, room, tuition and board. You will receive any balance amount that exists after paying for the above purposes.
Cancellation of Stafford loans:
It is possible to cancel either a portion or in full, the Stafford loan, provided that you inform your school within 14 days of the scheduled date of deposit of the loan with the school.
Repayment: there is a grace period of 6 months after you graduate from school or discontinue below the half time, after which you have to repay your loan. Under certain circumstances such as unemployment, financial problems, going for further studies, which may cause a delay in your repaying, you may be eligible for a deferment in the repayment date.
2) Federal Grad PLUS loans: if you are a graduate student looking for an affordable government guaranteed loan, then the Grad PLUS loan may just be the answer. With this loan, you will be able to cover the remaining expenses in connection with your education after your maximum annual subsidized Stafford loan amount
The interest rate for the Grad PLUS loans, as fixed by the US federal government on July 1, 2006, is 8.5%.
The Grad PLUS loans are subjected to an origination fee of 3% which will be deducted from the loan amount. There is no need for any initial payment to obtain the loan, as the fees are taken from the proceeds of the loan.
Eligibility: you are eligible for a federal Grad PLUS loan if you are a graduate student enrolled at a college, university or other eligible school in the U.S. you could borrow up to an amount equal to the difference of the total money needed in connection with your education, including tuition, books and other materials, staying, food etc. and any other financial help you have already received. Before determining the amount of Grad PLUS loan, you should maximize your subsidized Stafford loan requirements.
Other criteria of eligibility are the same as for the Stafford loan.
Terms of loan : Grad PLUS loans are simple interest loans. The general repayment term is 10 years and the repayment begins 60 days after the date of the final disbursement. If you borrow more than one eligible federal loan, you can consolidate your Grad PLUS loans into a single loanso that you can make the monthly payment process more convenient. loan deferment is allowed under special circumstances, and it lay also be written off completely in the event of the death of total disability occurring to the parent or student.
The process of cancellation of the Grad PLUS loans is similar to that of the Stafford loans.
3) Federal Parent Plus loans : Parent PLUS loans are intended to provide aid to those parents searching for an affordable loan option to provide cover for the whole of their child's college education. As they are not based on the financial need or income, you won't be denied a Parent PLUS loan on the grounds that your financial status is too high or too low.
Interest rate: the interest rate of the Parent PLUS loans are fixed at 8.5% by the federal government.
Fees: an origination fee of 3% is deducted from your loan amount. No initial money required as the fees are taken out of the proceeds of the loan. A default fee of 1% is assessed by the guarantor of the loan.
Eligibility: you should be a parent of an eligible and dependent undergraduate student. You must either be a US citizen or an eligible resident of the US and should meet the minimum federal credit requirements.
As for the student s, they should be less than 24 years old as of Dec 31 of the academic year, and should be unmarried with no dependents.
The loan terms, disbursement, repayment and cancellation processes are similar to the Grad PLUS loans.
Default: If you fail to repay your federal government guaranteed loan in time, it can default and may lead to serious trouble which can affect your credit rating very badly. You will have to pay back immediately, the entire unpaid amount of your loan including interest and also may be liable for additional collection costs. Your eligibility of claiming any further federal or state loan will be in jeopardy. You may also lose the option to get your loan deferred. You may face legal action as well in addition to still being liable to pay your loan.