School loans are considered “financial aid” but differ greatly from scholarships and grants
because loans need to be paid back. There are three major types of loans, Federal Student Loans, Federal Loans for parents, and Private Loans. This article focuses on the most common type of school loan, the Federal Student Loans.
As the name implies these loans are given directly to the student by the government. Within this main category there are two types of loans; subsidized, which means that the interest is paid by the government while the student is in school, and unsubsidized, which means that the student must pay the interest.
However, with unsubsidized loans there is the option to have the interest payments put on hold and added to the total loan until the student is done with school and in a better position to make payments. Subsidized loans are reserved for students who demonstrate a financial need: usually low family income.
Loan amounts are decided based on the students needs, and the students access to family resources, scholarships, grants and other forms of financial aid. Nearly all full-time students are eligible for at least some amount of loan. Both the subsidized and unsubsidized loans offer a six-month grace period to allow the student to find a job in their field and become more financially stable before payments are due. If a borrower becomes a part-time student there is a three-month grace period before payments are due. With Federal Student Loans there is a limited amount that a student can borrow each year.
There are two ways that a student may receive Federal Student Loans; Federal Direct Students Loans (FDLP) or Federal Family Education Loans. FDLP loans start with funds from the U.S. Treasury, these funds are then sent through the U.S. Department of Education and then distributed to the college or university. The school then uses it to pay school expenses and the remainder is available for the student to withdraw. Federal Family Education Loans (FFEL or FFELP) are funded by private banking organizations. The advantage of FFELP loans is that students have payment options available to them that are similar to the options available when taking out a home loan or consumer loan.
Students can apply for Federal student loans online. Most universities and colleges provide computers in their financial aid office where students can apply with the help of people who use the system constantly. Applying online is done through a program called Free Application for Federal Student Aid or FAFSA. By applying online you will automatically be considered for any type of aid including grants, which do not have to be paid back. Applying online can help you find out how much help you will be receiving as much as seven days faster, which will make it easier to secure other funds if necessary.
If a student has turned in a FAFSA application in the past, they can use something called a renewal FAFSA that automatically inserts information that does not change such as name and the school you are attending. This makes the process even faster. Students are also able to sign their application by using a pin number given to them by FAFSA, so there is absolutely no paperwork to be sent through the mail.