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Student Loans
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Article on Student Loans
College education is expensive in the U.S. and for most students - grants, scholarships and personal funding do not offset the entire cost. The only remaining option is to get a student loan. In fact, student loans are the most significant source of financial aid for students in America.
The First Step: The FAFSA
Federal student loans are the most widely available in the U.S. However, this channel of financial aid is only open to those students who fill out the Free Application for Federal Student Aid (FAFSA). This application is not only the basis for every form of federal financial aid (including grants), but is also a mandatory requirement for state government and some private aid sources.
The Advantages of Federal Loans
The reason why the federal student loans are far more popular than private ones is that students are only required to start repaying six months after graduating. Besides, interest rates on federal student aid is generally fixed and subsidized, there is flexibility in the repayment options, and the aid is easily and abundantly available. All citizens of the United States who haven’t defaulted on previous federal educational loans are eligible for federal loans.
The Perkins Loan
There are four major kinds of federal student loans to fund college education: the Perkins loan, Subsidized Stafford loans, Unsubsidized Stafford loans and the Grad PLUS loan. Of these, the cheapest is the Perkins loan. It is awarded to students with maximum financial need, and even students with a bad credit history can get this loan, as long as there are no previous federal loan defaults. The maximum limit is $8,000 per year and the interest rate is a nominal 5%. What’s more, no interest is charged while the student is studying. The only possible problem is availability.
Stafford Loans
Subsidized Stafford loans are the next cheapest, and their availability is also based on financial need. The limit is $8,500 and the interest on it is capped at 7%. However, like the Perkins loan, no interest needs to be paid while the student is studying. Since these loans are awarded directly by the federal government, availability is not an issue for qualifying students. Here too a bad credit history is not an insurmountable obstacle. The only major difference in the unsubsidized version of the Stafford loan is that interest is charged even while the students are studying.
Other Options
The Grad PLUS loan is the final form of federal aid, and it is not based on financial need and is more expensive than the others. It also requires a good credit history. If students are still not being able to cover all their education costs after exhausting all federal aid options, they can revert to private student loans as well.
The bottom line is that there are lots of options for students seeking financial aid to fund their education. Also, since the federal government is the most popular source, most of the student debt does not end up being an excruciating burden.
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