Overview of Federal Student Loans

[Author's note: since passage of the the Health Education Reconciliation Act of 2010 on March 26, 2010, PLUS loans and Stafford loans are no longer offered through the now defunct FFEL program. This article is meant as a consumer resource showing what lending was like before student loan reform took effect.]

Correctly choosing the federal student loan that greatest fits one's financial needs requires understanding the different kinds which exist available. This article will explain the two large federal education loan programs-the Federal Family Education Loan Program (FFEL) and also the William D. Ford Federal Direct Loan Program (FDLP, or Direct)-as well since the difference between subsidized and unsubsidized student loans.

Federal Student education loans - FFEL Loans

FFEL loans are federal student education loans offered by private financial institutions, such as Citi as well as Chase, and backed by the federal government, thus minimizing the danger for private lenders. Of the two student mortgage programs, FFEL loans account for nearly 80% of federal student education loans, making it by far the largest lending plan for students.

FFEL loans can be offered in order to both parents and students who qualify, and could be either subsidized or unsubsidized. Stafford loans and PLUS loans (which is explained in a later section) can be offered with the FFEL loan program. Additionally, FFEL loans can end up being consolidated.

FFEL loans have been criticized for being wasteful because private lenders essentially behave as intermediate players in the lending process; they receive subsidies from the us government which then go toward the loans themselves. A few politicians, including President Obama, have called for the actual FFEL loan program to cease, thus broadening the actual Direct loan program. While a bill seeking to shift FFEL loans to direct lending passed the home of Representatives on September 17, 2009, it is unclear once the Senate will take up such legislation and what the end result will be, as such a move will require a massive shift in the manner loans are administered and disbursed.

Federal Student Financial loans - Direct Loans (FDLP)

Direct financial loans, as the name suggests, are offered directly by the us government through the Department of Education. As the single lender, the government releases funds for eligible college students and parents to participating schools, who then apply the funds to cover students' tuition and associated costs.

Direct loans, just like FFEL loans, can either be offered as sponsored or unsubsidized loans, and the program also provides both Stafford and PLUS loans. Additionally, Direct loans could be consolidated.

Subsidized and Unsubsidized Federal Student Loans

Subsidized federal student education loans are available based upon a student's demonstrated monetary need. These loans, which are subsidized by the actual Department of Education, direct the government to essentially cover the loan's interest while students is still in school, during a grace time period, and during loan deferments. As such, students with subsidized loans cut costs by keeping the accruing interest to a minimal.

With unsubsidized loans, students are responsible for all the interest which builds up during a student's university career. However, in some instances, borrowers can defer the eye while a student is still in school (that is often capitalized, or added to the principal from the loan).

Federal Student Loans - Stafford as well as PLUS Loans

A Stafford Loan is guaranteed by the us government, and is available either as a Direct mortgage or an FFEL loan. Whether subsidized or unsubsidized, the payment of Stafford Loans is deferred until students has been out of school for six several weeks. Until recently, Stafford Loans could have either variable or fixed rates of interest. However, as of 2006, Stafford loans are just offered with fixed rates.

A PLUS Loan, sometimes called an advantage Parent Loan, is available for parents of qualified students at post-secondary schools. Additionally, PLUS Loans are for sale to graduate and non-traditional, professional students as well. They may be either Direct or FFEL loans.

PLUS Loans, in contrast to Stafford Loans, are often taken out by mother and father, and as such the parents are financially accountable for its repayment.

Federal Student Loan Consolidation

For anyone who has more than one of the above mentioned financial loans, federal student loans can be consolidated into 1, manageable monthly payment. Consolidated federal student loans, whilst convenient for both parents and students, can also sometimes save money because of their flexible repayment options.