Direct Student Government Loans Are Still Available!

Given the current economic challenges facing many families, it's good to know that direct student government loans are still available. You still need to follow all the requirements, which are outlined in the application, which is available online now.

The basic requirements are you have to be enrolled at least half-time at a Direct Loan Program participating school, and you need to meet general eligibility requirements for the Federal Student Aid (FSA) programs. You should check with your school of choice for more information from their Financial Aid office. Most will be happy to help you in any way they can with the application and your specific details.

Always check with your school's Financial Aid Office. These people know the government and private requirements and can be very helpful in dealing with all the paper work. Like all government programs, paper work is the key to success.

There are three basic types of loans available directly from the government:

For students with financial need that are determined by federal requirements, subsidized Stafford Loans are your best choice. There is no interest charged as long as you are at least a half-time student.
Stafford Loans that are not subsidized nor based on financial need are also available. The drawback is interest is charged from the loan start date.
For graduate and professional students, there is a PLUS Loans program with low interest rates. Parents are also eligible for this program to help dependents who are students.

If you are applying for a Direct Stafford or Plus Loan, you need to complete the Free Application for Federal Student Aid (known as FAFSA). Once again the best source of information on how to fill out this form is your school's Financial Aid Office.

Loan amounts are determined by the cost of your school's costs, the year of school (like first, second, graduate, etc.) and there is a maximum annual amount for each type of loan. Here are the minimum and maximum amounts by school year, loan, and status.

	Dependent student	Independent student
1st-year undergraduate	$3,500 / $2,000	$3,500 / $6,000
2nd-year undergraduate	$4,500 / $2,000	$4,500 / $6,000
3rd- and 4th-year undergraduate	$5,500 / $2,000	$5,500 / $7,000
Graduate/professional	NA	$8,500 / $12,000

The first amount is the base and the second is the amount of additional unsubsidized funds. The Independent student is one who is not a dependent or does not qualify under the guidelines of the dependent status. The interest as of July 1, 2008 on the Stafford Loans is set at 6.00%, Plus Loans at 7.9%. There is also a 2-4% fee for each loan.

There are limits set on total amount borrowed over the entire period. Each loan method has a ceiling amount as follows:

$31,000 for a dependent undergraduate student with limit
of $23,000 subsidized.
$57,500 for an independent undergraduate student with limit
of $23,000 subsidized.
$138,500 for a graduate or professional student with limit
of $65,000 subsidized that includes undergraduate loans.

The amount of money is also limited by the school costs, which probably won't impact the amount due to the high costs of education. Private 4 year colleges average about $9000 for tuition, books, and fees (no living costs). Public and state 4 year schools average about $6000 per year. Two year and Technical 2 year or less programs can be all over the map based on the subject matter and certification.

Once you have been approved for any of these loans you will have to sign a MPN, Master Promissory Note. Your school will receive the funds and apply them to your costs although depending on your situation they may issue funds directly to you.

Stafford Loans repayment start 6 months after your graduation date, leave school, or drop below the half time requirement. Depending on which payment plan you choose, you will have between 10 and 25 years to pay back your loans.

You have four methods to pay back your loans:

Standard Repayment Plan - Fixed monthly payments for up to 10 years.
Extended Repayment Plan - Monthly payments for up to 25 years, there are fixed and graduated payment options.
Graduated Repayment Plan - Payments that start off low and increase, usually every two years or what ever period you choose.
Income Contingent Repayment Plan - Your payment is adjusted according to income (this may include spouse's income too), family size, and total amount of loans.

The only catch 22 right now is the interest rates have fallen dramatically in the financial meltdown, the government is still charging a fixed rate. This is not way out of line but as of January 2009 the prime interest rate is 3.75%.

You may be able to find private sources for your student loan that have lower interest rates. The common interest rate for private loans was 11-12% before the financial crisis. Although direct student government loans are still available, it is well advised to investigate all sources.

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