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Understanding Federal Direct Student Loans Program

Direct student loans are federal educational loans with low interest rates. These loans are provided by the US Department of Education with the intention to help students and their parents to pay for postsecondary educational expenses and usually cover tuition costs as well as additional expenses like transport, books, food, accommodation, etc. Direct Student Loans should not be confused with uncertified student loans, which are regularly characterized as direct-to-consumer loans.

The main benefits of Direct Student Loans are following:

  • Low interest rates;
  • Student borrows money directly from the federal US government, without third-party lender such as bank or financial institution;
  • Borrower have the opportunity to choose from numerous repayment plans which can be switched at any time, if the borrower needs a change;
  • Borrower has online access to his or her Direct Student Loan account information via his servicer’s website.

As it was mentioned before, the lender of Direct Loans is the Department of Education. Before the passing of SAFRA (Student Aid and Fiscal Responsibility Act) in 2010, federal loans for students could be offered as a part of the Direct Loan Program or the FFEL (Federal Family Education Loan) program, but SAFRA basically eliminated FFEL Program, and now most federal student loans are offered through the Direct Loan Program.

The four main types of federal student loans are:

  • The Subsidized Stafford Loan
  • The Unsubsidized Stafford Loan
  • The Direct Consolidation Loan
  • PLUS Loans

The Subsidized Stafford Loan

The Subsidized Stafford Loan is offered as a financial aid for students in who are proved to be in financial need, and it can be obtained without charge of interest during the time student is enrolled in school and during grace period and approved deferment periods after graduation.

The Unsubsidized Stafford Loan

Unsubsidized Loan is not based on student’s financial need. This loan option offers a choice to borrow of paying the interest while still is enrolled in college or university as well as during grace period and deferment period or can choose to accept for the interest to be added to the principal amount of his student loan.

For the both of the Stafford Loans student can apply via the completion of FAFSA.

The Direct Consolidation Loan

The Direct Consolidation Loan is category of loan which allows borrower to replace multiple student loans with just one. The Federal Direct Consolidation Student Loan Program lets borrower to consolidate most federal loans.

The Direct PLUS Loan

The Direct PLUS Loan is federal student loan for parents of the depending students intended to assist parents to pay for their child’s school expenses. To be eligible for the Direct PLUS Loan parent and student must meet certain requirements: must be the U.S. citizens or eligible non-citizens, parent must be the biological or adoptive parent, and in good standing with earlier loans and the student-depending child must be enrolled at least half-time at school participating in the Direct Loan Program.

Student loans provided under the Direct Loan Program will also require that applicants sign a Master Promissory Note (MPN) that will serve as a guarantee of their ability to repay the loan.

To sum up, the Direct Student Loans are federal education loans offered by the US Department of Education. Therefore, loan comes directly from the federal government, without involvement of third-party lenders like banks or financial institutions.

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Applying for Student Loans Consolidation What You Should Know

Student loans consolidation is type of loan which allows borrower to replace several student loans like Perkins Loans, PLUS Loans or Stafford Loans or some private loans with just one. Under this plan, students can borrow enough money in one loan to repay other student loans. In case of federal student loans, the Federal Direct Student Loan Program lets you to consolidate most federal loans. For the private student loans, you can apply for a loan and use it to repay several private loans, so as to consolidate the sum and combine multiple repayments into one.

Benefits and Drawbacks of Student Loan Consolidation

There are some advantages of getting student consolidation loan, such as follows:

  • Student Debt Consolidation loan may have a lower interest rate than the rates on credit cards, so the loan should reduce student’s interest charges and help him/her eliminate credit card debt, finally.
  • You may have the opportunity to repay your student loans over extended period of time, which is advantageous because decreases your monthly payments.
  • If you take a private student loan, compared to federal loans, it is possible to negotiate more favorable interest rates with bank or other lender.
  • By joining your federal student loans with a for example, bank or other lender, you owe money to the bank instead to the government, which can be beneficial since if you fail to repay your federal loan, government can take hold on tax refunds; the bank cannot do this.
  • In case you have a negative credit rating report due to your previous student loans, a consolidation loan can let you repair your bad credit history.

On the other hand, there are some downsides of getting student loans consolidation as well.

  • Loan repayment extension, often from ten to thirty years means that at the end you will pay back the much higher total amount of the loan than the particular loans were themselves.
  • You may be eligible for interest release on condition that your student loan is guaranteed by the U.S. government. After student loans consolidation the bank will not give you interest relief.
  • In case you have bad credit or job history the interest rate charged on your student loan by the bank may be higher than interest charged under the federal student loans.
  • Consolidation loans are not available to all students; you must meet certain eligibility criteria to qualify for the student loans consolidation.

Eligibility Requirements

To qualify for the private Student Loans Consolidation Plan, you must meet some conditions:

  • You must be working or have some other source of monthly income allowing you to pay off the loan. Bank will estimate your ability to manage your debt based on your income.
  • The bank will also require the copy of your monthly budget statement to decide if you can handle your loan repayments.
  • To satisfy requisites set up by the bank or other lending institution you are dealing with, you may need a co-signor or collateral (such as a house or a car).

How to Apply for the Student Consolidation Loan and Repayment Options

The application process is very simple. You just need to fill the online application (also available in paper form) and Promissory Note and submit it to apply for a Direct Student Consolidation Loan. The application also includes your Borrower’s Rights and Responsibilities. In addition, you will have to complete Repayment Plan form in order to select your repayment plan. You can choose from several repayment option and some of them are: Income-Based Repayment which depends on your income, which means that the repayment amount is going to rise as your income does; Income-contingent and Income-sensitive plans for individuals with fluctuated income.

For self-employed individuals who have their income fluctuated, income-contingent or income-sensitive repayment plan can be most advantageous solution. According to this plans, as the borrower’s income rises and falls, the amount of their loan also does. In fact, income-contingent and income-sensitive plans are very similar to previous IBR and can be considered as it variations.

Before You Apply

There are some important issues to take into account when you are thinking of taking the student loans consolidation plan. Firstly, always do a little research on the loan characteristics, available repayment options, interest rates and other term and conditions. Do not sign any contract before you are sure that you completely understand all the matter you are getting involved with. Read as much articles about student loans and available borrowing options to figure it out which one is the most appropriate for you. To determine if you are eligible for a Student Loan Consolidation plan, contact department of Education, your bank or lending company to obtain all the necessary information.

In the long run, a consolidation loan typically pays more interest over time due to the extended loan term, so be aware of this before you apply for your student loans consolidation.

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Federal Stafford Loans for Undergraduate or Graduate Students

Stafford Loans are type of direct federal loans offered to students enrolled in accredited U.S. educational institutions of higher education with the purpose of giving them assistance in paying for their academic expenses. One of the most important conditions which student must meet in order to qualify for Federal Stafford Loan is to be enrolled at college or university at least on half-time basis. In addition, to be eligible for this student loan plan, applicant must attend a post-secondary institution that participates in Federal Family Education Loan Program, must be a U.S. citizen or national, a U.S. permanent resident or eligible non-resident.

Stafford Loan Plans

Federal Stafford Loans consist of following two types of plans:

  • Subsidized Loans which are introduced as a financial aid for students in economic need, and they are offered without charge of interest during the time student is enrolled in school and during grace period and authorized deferment periods.
  • Unsubsidized Loans which are not based on student’s financial need. Under this loan plan applicant may select option of paying the interest while still attends college or university as well as during grace period and deferment period or can choose to agree for the interest to be added to the main amount of his/her loan. With this alternative the total loan amount student has to repay is higher.

Stafford Student Loan Benefits and Drawbacks

With this student loan plan student can benefit in several ways. Firstly, you will enjoy loan repayment exclusion during the time you are in school, you will start to pay off the loan six months after you finish the school. Secondly, borrowing limit increases in some cases to up to $20,500 per year and finally, Stafford Loan is issued with fixed interest rate. This loan’s interest rate may differ depending on the date the loan was disbursed and in some cases on the education level of the student (undergraduate or graduate).  Additional advantage of Stafford Student Loan is the fact that Interest rates do not fluctuate with default risk, which means that all students are given the equal interest rate apart from of their major or their future career prospects.

Federal Stafford borrowers under certain conditions meet the requirements for the loan forgiveness program, for instance if they work as teachers in designated “low-income” schools, social services or if they join the army.

On the contrary, there are strict eligibility requirements and borrowing limits on Stafford Loan Plan and we recommend that you consider all the borrowing and repaying terms and conditions before you apply.

Stafford Loan Interest Rates

Given the fact that this type of loan is provided by the U.S. Government, it is offered at a lower interest rate than private student loans. Stafford loan interest rate may differ and are established upon the date the loan was disbursed. It also depends on the education level of the student (undergraduate or graduate).  As of 1st July 2006, Federal Stafford Loans are issued with fixed interest rate at 6.80% for unsubsidized loans and with somewhat lower rates for subsidized loans for undergraduate students. Starting from 1st July 2012 the fixed interest rate for all new subsidized loans will be changed to 6.80%.

How to Apply

  1. First step in applying process is to complete a FAFSA
  2. Than your school will evaluate your results and inform you of your Stafford loan eligibility by sending you an award letter
  3. After you have your award letter received you should apply for the Stafford Loan

Your Stafford loan lender will pay out your funds directly to your school. The money will be disbursed in two installments, typically in the fall and winter semesters. Your loan money will be used to pay your education and other school fees. In case you have extra funds left, your school will credit your account or pay you directly based on your school’s policy.

There are also other federal financial aids as well as private loan options available, so you should keep informed about all of these borrowing alternatives in order to choose the best student loan plan for you.

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