Direct Federal Student Loan
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Direct federal student loans are funded by the U.S. government and are relied upon by many students to help finance their college educations. These are extremely popular and advantageous for aspiring college students. Easy qualification guidelines, attractive interest rates, and flexible repayment options are just a few of the reasons that a college attendee would turn to a direct federal student loan to finance his or her education.
This type of lending is frequently referred to as the Stafford Loan and two versions exist. One, the Federal Family Education Lending Program (FFELP) provides lending from private lenders such as banks and credit unions. The government guarantees this direct federal student loan against default. The other, called the FDSLP, provides lending directly from the government to college students and their parents. This lending is either subsidized (the interest is paid by the government while the borrower is attending school) or unsubsidized (borrower pays all of the interest, though not necessarily until they have completed their education).
All students, regardless of their financial need, are eligible for the unsubsidized lending. The amount that can be borrowed varies depending on the year of schooling. For example, dependent students in their freshman year can borrow up to $2,625; in their sophomore year they can borrow up to $3,500; and in each remaining year the limit increases to $5,500. Students can apply for both the subsidized and unsubsidized government lending at the same time, for the same time period. In fact, many students apply for both and receive the maximum amount. The limits on direct federal student loans for graduate students are much higher: up to $18,500 (of which of $8,500 is subsidized).
To apply for this lending, the applicant must file the Free Application for Federal Student Aid (FAFSA) form. Even though approval of the unsubsidized portion of the direct federal student loan (the Stafford Loan) is not linked to financial need, the form still must be submitted. Applicants can find this form online or in the financial aid office of their college. All lenders offer the same variable interest rate government lending, and the rate is capped at 8.25%. However, it is still wise to shop around because some lenders may offer a slight discount if the borrower agrees to automatic online payments. In addition to direct federal student loans, many banks, credit unions, and other financial institutions offer supplemental, private lending programs.
College can be an eye-opening, mind-expanding, future-planning time of life. The use of direct federal student loans allow the borrower to finance a college education wisely. Applicants can speak with the college's financial aid officers and a tax adviser or accountant if they have any questions. "Hear counsel, and receive instruction, that thou mayest be wise in thy latter end," (Proverbs 19:20)
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