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Many students rely on federal government loans to finance their educations. These loans have low interest rates and do not require credit checks or collateral. Student loans also provide a variety of deferment options and extended repayment terms. Student loans include the Federal Stafford and Federal Perkins Loans. Stafford Loan The main federal loan for students is called the Stafford Loan and has two variations:Federal Family Education Loan Program (FFELP) loans are provided by private lenders, such as banks, credit unions and savings & loan associations. Citibank Student Loans is one example of a private lender offering FFELP loans. These loans are guaranteed against default by the federal government. Federal Direct Student Loan Program (FDSLP) loans, administered by "Direct Lending Schools", are provided by the US government directly to students and their parents. All Stafford Loans are either subsidized (the government pays the interest while you're in school) or unsubsidized (you pay all the interest, although you can have the payments deferred until after graduation). To receive a subsidized Stafford Loan, you must be able to demonstrate financial need.With the unsubsidized Stafford loan, you can defer the payments until after graduation by capitalizing the interest. This adds the interest payments to the loan balance, increasing the size and cost of the loan. All students, regardless of need, are eligible for the unsubsidized Stafford Loan.Starting on July 1, 2007, Stafford Loans allow dependent undergraduates to borrow up to $3,500 their freshman year (up from $2,625), $4,500 their sophomore year (up from $3,500) and $5,500 for each remaining year (independent students and students whose parents have been turned down for a PLUS loan can borrow an additional unsubsidized $4,000 the first two years and $5,000 the remaining years). Graduate students can borrow $20,500 per year (up from $18,500), although only $8,500 of that is subsidized. There are also cumulative limits of $23,000 for an undergraduate education and a $65,500 combined limit for undergraduate and graduate. (For independent students and for students whose parents were denied a PLUS loan the cumulative limits are $46,000 and $138,500, respectively. Some medical school students may be able to borrow up to $40,500 a year (up from $38,500) and $189,125 total.)Many students combine subsidized loans with unsubsidized loans to borrow the maximum amount permitted each year. Stafford Loans have a fixed interest rate of 6.8% for loans with a first disbursement after July 1, 2006. All lenders offer the same rate for the Stafford Loan, although some give discounts for on-time and electronic payment.Stafford Loans have loan fees of 4%, which are deducted from the disbursement check. These fees consist of a 3% origination fee and a 1% guarantee fee. Starting July 1, 2006, the guarantee fee will be mandatory. (Previously, guarantee agencies could waive the fee and many did.) The origination fee will drop from 3% to 2% on July 1, 2006, and will drop by a further 0.5% each successive July 1, until it is phased out entirely on July 1, 2010. Repayment begins six months after the student graduates or drops below half-time enrollment. The standard repayment term is 10 years, although one can get access to alternate repayment terms (extended, graduated and income contingent repayment) by consolidating the loans. Applying for a Stafford Loan To apply for a Stafford Loan, you must submit the Free Application for Federal Student Aid (FAFSA). Even though the unsubsidized Stafford Loan is available to all students regardless of financial need, you must still submit the FASFA to be eligible. You can receive a subsidized loan and an unsubsidized loan for the same period.You may use the Lender Codes Database to obtain the lender codes of participating student loan providers. Fin Aid also maintains a list of education lenders who offer federal and private student loans. If you are a student attending a school that participates in the Federal Direct Student Loan Program you will obtain your federal student loan funds directly from the U.S. government, not from private lenders. Perkins Loan The Perkins Loan is awarded to undergraduate and graduate students with exceptional financial need. This is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government. (The Perkins Loan is the best student loan available. It is a subsidized loan, with the interest being paid by the federal government during the in-school and 9-month grace periods. There are no origination or guarantee fees, and the interest rate is 5%. There is a 10-year repayment period.The amount of Perkins Loan you receive is determined by your school's financial aid office. The program limits are $4,000 per year for undergraduate students and $6,000 per year for graduate students, with cumulative limits of $20,000 for undergraduate loans and $40,000 for undergraduate and graduate loans combined.The Perkins Loan also offers better cancellation provisions than the Stafford or PLUS loans.Other Student Loans If your borrowing needs are not met by the federal programs, lenders offer a variety of supplemental borrowing programs known as Private or Alternative Loans.Parents of undergraduate students can borrow parent loans such as the PLUS Loan to pay for their children's education. Starting on July 1, 2006, graduate and professional students will also be able to borrow money through the PLUS Loan program to pay for their own education.Note: This paper was written by representatives at the University of North Texas Student Money Management Center and is being used by permission of the University of North Texas Student Money Management Center.Source: ................
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