Federal loans to finance college education

The federal government offers various loans to cover college costs through its Federal Direct Loan Program which should be explored by students before considering going for private loans. These loan facilities include direct subsidized and unsubsidized loans and the Direct PLUS Loans. The Stanford loans is a term used to refer to these subsidized and unsubsidized loans offered by the federal government and attract very low interest loans .Direct Loans that are subsidized (Stafford subsidized) are available for students with known financial needs according to federal regulations. Loans that are direct and unsubsidized (Stafford unsubsidized) are not issued on the basis of financial needs but the school determines the amount a student can borrow based on attendance cost and other financial aides received (U.S. Department of Education, 2016).

For the unsubsidized loans, they are not offered on the basis of income and not every student is eligible for the maximum amount of loan. Students’ eligibility is determined by their year, other aids awarded and the attendance cost estimates. Students borrowing the unsubsidized Stafford Loans have to bear the whole amount of interest accumulated while in school, deferment and during the provided grace period (U.S. Department of Education, 2007).  For the subsidized Stafford Loans they have fixed interest rates currently at 4.329 percent while interest for the unsubsidized ones stands at 5.84 percent for the graduate level(U.S. Department of Education, 2016).

A monthly payment for the student loan can be determined by the formula for car loan as follows;

Monthly payment = (interest rate/ 12 months x Principal amount) (1- {1+ interest rate/ 21 months) ^{- months}.

 If a student had a loan of $ 15000, which is to be repaid within 3 years at an interest of 5.84 % , the payment amount would be as follows;

             15000 (0.584/12) / {1- (1+0. 584/12)^-36} = $463.16 monthly payment

The Perkin Loans are paid through the Federal Perkins Loan Program. They have low interest and are available for college students who have financial needs that are exceptional. The loans are accessible by students who have enrolled for both part-time and full-time programs and are attending those schools participating in this loan program. An undergraduate student is eligible to a maximum $ 5,500 each year with the highest that they can borrow being $ 27,500. Other than an interest of 5 percent, there no extra charges on the loan but skipping payment or late payment or payment less than total amount may attract late charges and any collection fees (U.S. Department of Education, 2016). The Direct Plus Loans is made to borrowers through colleges participating in Direct Loan Program. A borrower’s credit history must not be adverse and attendance cost is the largest amount of loan less other financial aids that one has received. One is required to have his or her signature in Mater Promissory Note for Direct PLUS Loan where they agree to the terms of the loans. The loan interest rate is fixed at 6.31 % (U.S. Department of Education, 2016).  

Student’s college cost can be met through grants that do not have to be paid, unless they were incorrectly awarded or one withdrew from college. Such grants includes Federal Pell Grant which is for undergraduates who have financial needs and have not earned professional or bachelor’s degrees. Another grant is Federal Supplemental Educational Opportunity Grant which is offered to students who are exceptionally in need. There are also scholarships which are awarded by individuals or organizations on the basis of selective criteria - merit based or need based – and are afforded for various national, regional or local sources (Williams College, 2017).

Reference

U.S. Department of Education, (2016).DO YOU NEED MONEY FOR COLLEGE? The Guide to Federal Student Aid 2017–18. Retrieved from: https://studentaid.ed.gov/sa/sites/default/files/2017-18-do-you-need-money.pdf

 

 

U.S. Department of Education,(2007).Funding Education Beyond High School. 23-60.Retrieved from: http://files.eric.ed.gov/fulltext/ED490979.pdf

Williams College, (2017). Grants & Scholarships. Retrieved from: https://finaid.williams.edu/how-it-works/grants-scholarships/