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Federal Student Loans

federal_student_loansHistorically, statistics have proven that college graduates in the United States earn three times more than non-graduates.  For years, this ideology has motivated a large population of Americans to obtain a college degree believing that after graduation they will live in a better home, drive a more expensive car and have the opportunity to enjoy vacations and other luxuries when starting a family.

Most of today’s students in the United States require college financial assistance in order to get a higher education regardless if it is a community college, for-profit university, or vocational trade school.   Federal Student Loans are available as unsubsidized and subsidized loans and are always the smartest choice following grants and scholarships.  Federal loans allow students to acquire funding for college at lower interest rates and with more flexible repayment terms than private loans.

There are a number of Federal loan programs available, but the Perkins, Stafford and Plus loans are the widest known and most frequently utilized.   The current interest rate for all Federal loans (subsidized or unsubsidized) disbursed July 1, 2013 through June 30, 2014 is 6.8%.   All of these types of Federal loans are unique, but also include similarities.

Direct Subsidized Loans (i.e. Subsidized Stafford Loan or Perkins Loan) are available to undergraduates who can prove they have a financial need.   The U.S. Government pays all interest on the subsidized loan while the student is enrolled in an accredited institution at least part-time.  A six month grace period is allowed following graduation.  Those students who accepted their first loan on or after July 1, 2013 are limited on the amount of time they are eligible to receive Direct Subsidized Loans.  The timeframe is based on a student’s chosen program of study (aka called “maximum eligibility period”).

Direct Unsubsidized Loans are available for both undergraduate and graduate students and no proof of financial need is necessary.  However, the student is responsible for paying all accumulated interest while attending school and after graduation.  Again, the eligible amount of the loan is determined by the student’s school and study program of choice.   The Stafford and Perkins Loans often provide students with adequate funds for their education unless students are planning to attend a more costly for-profit-college or university.

The Parent PLUS Loan is another low interest federal student loan program offered which requires a credit check.  This particular loan typically requires a parental co-signer, but allows families to borrow the full cost of an education.  Obviously, when a parent co-signs on this type of loan, he or she is responsible for repayment instead of the student.

 

School Year
Type of Student
Max Annual Subsidized Amount for Dependent Student
Max Annual Unsubsidized Amount for Dependent Student
Max Annual Subsidized Amount for Independent Student
Max Annual Unsubsidized Amount for Independent Student

One

Undergraduate

$3,500

$5,500

$3,500

$9,500

Two

Undergraduate

$4,500

$6,500

$4,500

$10,500

Three & Up

Undergraduate

$5,500

$7,500

$5,500

$12,500

Aggregate/Lifetime Limit

Undergraduate

$23,000

$31,000

$57,500

$23,000

Aggregate/Lifetime Limit

Graduate

n/a

n/a

$65,500

$138,500

Federal Student Loan Default

Unfortunately, as unemployment, student loan interest rates and the cost of tuition rises, a high percentage of today’s students are experiencing difficulty in repaying their loans.  Nevertheless, private and federal student loans cannot be absolved with bankruptcy like most other debt.  There are a few student loan refinance and rehabilitation programs available to help borrowers in default to get back on track.

Restructuring student loans allow borrowers to reduce monthly payments and/or extend the amount of time to pay back the money.