Personal Student Loans - Navigating the Federal Student Loan Waters!

As the mother of a high school student, I feel the pressure of doing everything necessary to help my child get the best education possible. Everything in high school points to college. College? I’m not ready for high school! Yet here we are, and it is time to begin to think about the best personal student loan for funding that oh-so-expensive venture we call higher education.

So I began my research into the foreign world of student loans, financial aid, applications, and paperwork, paperwork, paperwork! The reality of the situation is that there is a lot of money available for college. There are a lot of options for where to find funds and what types of loans to apply for. I decided that the best place to start was to ask Uncle Sam for a cut of the federal funds allocated for students. What I discovered was that there are programs for every level of income and walk of life. I also discovered that Uncle Sam moves very slowly, and he likes obscene amounts of red tape! So hold on, bring a stash of pens and lots of patience, and walk through the eye-opening world of federal student loans.

Many families do not even attempt to find federal loans because they are convinced they do not qualify for need-based programs. While that may be true, there are options available for low-interest government loans for families who do not qualify for need-based student loans. But true to form, Uncle Sam requires you fill out the paperwork for ALL the loans, even the ones you know you don’t qualify for.

There are two broad categories of federal programs for student loans. One category is disbursed through private lending institutions, and the other comes straight from the Department of the Treasury.

Federal Family Education Loans (FFEL) are federally funded loans, disbursed through private lenders. Though funded by the federal government, these loans are repaid to the private lenders. There are three types of FFEL loans to consider. You are likely to qualify for one of these loans, but be sure to apply for them all and begin with the Free Application for Federal Student Aid (FAFSA). You must be denied a need-based loan before you will be considered for any other federal loans.

The first two loans to look at are the Stafford Loans, formerly Guaranteed Student Loans. Both these loans are loans in the student’s name, secured by a promissory note, or legally binding promise to repay. A cosigner is not permitted. These loans are great for students who are independent or whose parents don’t qualify for loans due to poor credit ratings. While there are two types of Stafford Loans, all the conditions are the same, but financial need determines which type you might qualify for. 

The first is a subsidized loan. For the student with a financial need, the government subsidizes the loan by paying for the interest while the student is still enrolled in school. Under this program, the student does not make payments or pay interest until graduation.

The second type of Stafford Loan is unsubsidized. This loan is for those who do not qualify for a need-based loan. The interest and all payments are deferred until graduation, but the student is responsible for the repayment of the entire loan and all the interest.

Both Stafford Loans are low interest loans with a variable interest rate, capped at 8 ½ %. Students must be enrolled at least half-time, which is usually a minimum of about two classes, depending on the college. Repayment of these loans is deferred until the student ceases to be enrolled at least half-time or until graduation, whichever comes first. The time to repay is usually five to ten years. These loans can be deferred in case of emergency, and an opportunity to cancel part of the loan is available to those who teach in low-income schools for five consecutive years after graduation. 

The third type of loan included in the FFEL program is the Parent Loans to Undergraduate Students (PLUS). A PLUS loan is in the parents’ names, and it is not based on financial need. Parents may borrow up to the total cost of attendance minus any other financial aid the student may be receiving. The interest rate on this loan is also variable, but it caps at 9%. Repayment begins 60 days after the final disbursement of funds for that academic year and usually extends for five to ten years.

Now, we are now half-way through the federally funded student loan information, but take heart. The preceding information applies to the forthcoming information.

The second major category of federal student loans is the William D. Ford Federal Direct Student Loan program. The three loans available through this program are the Direct Subsidized Stafford Loan, the Direct Unsubsidized Stafford Loan, and the Direct Parent Loan to Undergraduate Student Loan. They are EXACTLY the same as the loans described in the FFEL category. The only difference is that with the Direct Student Loan program, the funds come directly from the Department of the Treasury and are repaid directly to the Department of the Treasury, eliminating the middle man private lender. 

I don’t know about you, but for me knowledge is power. I was petrified about finding the right personal student loan for my family’s needs, but knowing more about how the process works will help me navigate the process without losing my mind! Remember to step into this process with a lot of patience and understand that the federal government does nothing without a lot of slow-moving red tape. The money you can receive from federal student loans can make it possible for your child to get the education you want them to have, without jeopardizing the financial health of the family.