What Type Of Loan Are You Qualified For: Get Your Higher Education Degree Using Federal Student Loans
When a student needs money for college (or when parents need assistance to pay for their child’s tuition), they generally send in the FAFSA form, which will let them know what kinds of federal student loans they are eligible for, either the Federal Direct Loan or the Federal Family Education Loan. Most people do not understand what kinds of loans fall under these two types and whom they are designated for. If you’re wondering what category of federal student loans you will need, read further to learn more.
Once you’ve completed your FAFSA form and found out what your loans are going to be, your biggest question may be, “ How do I get the money?” To answer this question, your federal student loans, especially the Federal Stafford Loan, will be distributed to you in one of two ways, through the Federal Direct (FDLP) or Federal Family Education (FFEL)
A Look At Federal Direct Loans
When you choose to go after the Federal Direct Loans, you’ll notice that it’s got more rigid requirements than those loans that fall under the Federal Family Educational Loans. The reason for this is that the loans are coming from the U.S Treasury to the Department of Education.
After that, the school will receive the funds and present it to you. However, it will first be applied to your outstanding balance at the school, which includes the tuition, room and board, fees and other miscellaneous charges that the school expects you to pay. If any federal student loan money is still available, the school will give you a check or cash; some may even deposit it directly into a school account.
Why, do you ask, are schools handling the loans this way? This method of handing out loans is to prevent fraud such as students not enrolled in school obtaining money. It’s also a way to control how students are using their federal financial aid money, making sure it is spent on things they need for school. Federal funds are also given in installments.
It’s important to understand that the amount of students seeking these funds is quite high so they generally have a low limit. Since students tend to devote more of their time to studies than getting a job, they have a six-month window before they must pay back the loans.
A Brief Look At Both Subsidized and Unsubsidized Federal Student Loans
Subsidized Loans – When you want to go to school and are approved for federal loans, it’s generally because you were seen to have a financial need for them. When this occurs, you’re generally handed subsidized loans first. This need is based on either your income or your parent’s income along with how much it is going to cost for you to attend the school of your choice.
The interest rate that accrues on these loans is taken care of by the government so long as you’re in college. However, once you have graduated or have left school, you have a six-month window to begin paying back your loans.
Unsubsidized Loans – The government also guarantees unsubsidized federal student loans but it is up to the student, not the government, to pay for the interest. If you choose to defer your interest payments until you leave school, it will be compounded with the original loan and you’ll be given the total amount owed. Most students, you included, will probably need to defer the interest payments until school is over.
A Look At Federal Family Education Loans
The Federal Family Education Loans are handed out to the parents and are actually seen more as a consumer loan rather than a student loan. Consider it as if you had been given money to pay for a child’s tuition. Similar to the Federal Direct Loan, the FFEL will be sent from the school in two installment checks but the student federal loans money must be applied to the outstanding balance first. The FFEL loans are funded through private bank capital and have a higher disbursement limit than the direct loans. The big difference in this loan and the federal direct loan is the immediate requirement for the parents to pay back the loan.
PLUS Loans – Plus Loans generally fall under this category of loans. This loan requires parents to take out the loan, unlike the Signature Student Loans that have them co-sign with their child. FFEL loans are the parents’ responsibility to pay on, not the student. This means parents who choose not to pay the federal student loans right away and pay it off in the time specified will have their credit negatively impacted; the student is clear of this default.