Student Loans

Federal student loans are funding options made available for all students in universities within the United States. This type of loan grants the student access to some funds without the necessity of having any collateral for the loan.

How does a federal student loan work? First, the student will select among the federal student loan type available. When the loan is granted, the student need not start paying the loan immediately. Loan repayment starts after 6 months from graduation or after the student is out of the school. While the student is still in school, the government shoulders the payment of the loan’s interest. This is a benefit called in-school subsidy that the student would enjoy while he or she is still enrolled. The government also pays for the interest of the 6 months grace period given to the student after schooling.

Perkins Loan. This type of student federal loan utilizes the school to receive the loaned amount for the student and the school will transfer the amount to the student’s account in a form of credit. This type of loan has a 5% interest rate.
Stafford Loan. This type of student federal loan avails of the lending services of a bank which will act as a lender. When the application is approved, the bank will send the loaned amount to the student’s school and the school will transfer the amount into the student’s account as credit. This type of funding option is also called a subsidized loan and it comes with a 6.8% interest rate.
Direct Student Loans. This type of student federal loan has no lender. In direct student loans, the government acts as the lender. However, direct student loans are only granted to US citizens and permanent residents. Actually, many still do not know the full details about direct student loans, but today, with the vast proliferation of internet usage, these students or anyone for that matter can have easy access to information especially rules and regulations of this typo of federal student loan.

Another option that could benefit a student who availed of these types of federal student loans is the interest reduction scheme. Loan recipients who choose to utilize the direct debit option to make payments can get as much an interest reduction from the loan. The reduction of the interest rate depends on the educational attainment of the recipient student. As observed, federal student loan interest rate reduction can go as much as 1% for undergraduates while interest rate reduction for graduate students is offered at 1.5%. This is again, on an agreement of direct debit payment scheme.