Student Financing 101: Federal Student Loans

In the post-recession economy, talk of going to college or university centers less on what your major will be or where you will attend school and more on how are you going to afford it.

Do you know what your financial options are? Are you considering using scholarships only? What about grants? Will you be using public or private funding?

If you’re a parent, have you started saving for your child’s education? Are you using state or federal resources or saving privately? Have you dipped into your personal savings or retirement funds? Are you unsure of where to even start looking to learn more?

Student financing is usually a patchwork quilt of a number of options woven together in order to make college more affordable to a student paying their own way or for parents helping their child through university. In our first installment on student financing we take a look at some of the federal student loan options that are available.

Federal Student Loans

The largest of the federal student loan programs is the William D. Ford Federal Direct Loan program (usually referred to as the Direct Loan). Under this program, for which the U.S. Department of Education acts as the lender, are four types of loans.

1. The Direct Subsidized Loan is for undergraduate students. While attending school, you’re not charged interest on the loan or during deferment periods. The annual award limits for a Direct Subsidized Loan is between $3,500 and $5,500 per year, but this is dependant on the school. A subsidized loan means that the government handles payment on the interest while you’re attending school. Recent changes mean that if you are in a grace period, you are now responsible for paying back the interest that accrues during that period. (This applies to Direct Subsidized Loans that were disbursed between July 1, 2012 and July 1, 2014.) To qualify for a Direct Subsidized Loan, you will need to show that you have a financial need for the money and the subsidiziation.
2. The Direct Unsubsidized Loan is for both graduate, undergraduate, and also professional students. You have to be enrolled at least half-time (you should check with the college or university for the credit requirements for half-time status). With a Direct Unsubsidized Loan, you’re responsible for the interest when in school and also during deferment (the unsubsidized nature means that you’re completely responsible for paying the interest, no matter what the status of the loan is). The interest for a Direct Unsubsized Loan begins accruing from the date of disbursement, though the entire lifetime of the loan. The annual award limits for a Direct Unsubsidized Loan are higher than the Direct Subsidized Loan, with the award being between $5,500 to $20,500 (this depends on which year you are in at school and also your dependency status. Also, this would be less the amount of any subsidized money received for the same time period). As the loan is unsubsidized, you don’t have to show a need for the loan as a requirement.
3. Direct PLUS Loans For Parents are available only to the parents of an undergraduate student who is their dependent (PLUS stands for Parent Loan for Undergraduate Students). The student has to be enrolled at least half-time and the award limit is maxed out as the cost of attendance (COA) less any other type of student aid. COA is calculated as how much money it will cost for a student to attend school. This figure is determined by combining the cost of tuition and associated fees, room and board for students staying on campus (for those staying off campus, this would be the cost of housing and also food), and the cost of transportation, supplies, textbooks, and even fees from loans. There are personal and miscellaneous expeneses included in the figure as well.
4. The Direct PLUS Loan for Graduate or Professional Students is geared toward those students who are either pursuing a graduate or professional degree and who are enrolled either full-time or half-time. Since this loan is made to the student, the student bears the burden of interest and payment. The student can’t have a negative credit history and they are responsible for the interest payments. As with the Direct PLUS Loan for Parents, the maximum award amount is COA less any other financial aid.

In our next installment, we’ll take a look at the other federal student loan programs available, from the Federal Perkins Loan Program to Stafford Loans to loans under the Public Health Service Act.