FAFSA Loans | What Are Your Options?
College is expensive, and it’s not getting any cheaper! And many families are forced to fund their child’s education with FAFSA Loans. But what are your options? What is the difference between FAFSA Loans, and does one have an advantage over another?
In this college preparation article, we’re going to explain a few of the loan options you have available to you via FAFSA. If you missed our previous article in this ongoing FAFSA series, take a quick look: What Does FAFSA Cover?
Types of FAFSA Loans
Before we begin our look at the different FAFSA loans, we should mention that only by applying via FAFSA.ed.gov can you find out which of these loans you are eligible for. The Federal Government takes into consideration all of your financial and family information in their decision, and you could qualify for Federal Grants, Federal Student Aid or a Work-Study Program. But, you need to apply first!
Direct Stafford Loans
The Direct Stafford Loan is one of the more common college educational loans that students get to cover costs at a 4 year University, Community College, or Trade and Technical Colleges. These funds are issued directly by the U.S. Department of Education and carry a relatively low interest rate. There are actually 2 types of Direct Stafford Loans that we’ll discuss…
- Direct Subsidized Loans – These are designed for students who can demonstrate financial need. The big advantage to the subsidized loan is that the borrower is not charged interest while enrolled in school at least half time, and also during deferrment periods. Also, you are not required to make monthly payments on the loan while you are enrolled in school.
- Direct Unsubsidized Loans – For an unsubsidized loan, you do not have to demonstrate financial need in order to receive the funds. Your school will determine how much you are allowed to borrow, but there is a difference here when compared to a subsidized loan. You will be responsible for paying the interest on the loan, and it begins at the time the loan is paid out. You can choose to pay the interest while in school to lighten the debt, or you can let it accrue and start paying it off when you graduate.
Direct Plus Loans for Parents
Another option for FAFSA Loans are the Direct Plus Loans for Parents. The “Plus Loan” is designed to cover costs of college that the other FAFSA Loans will not cover. For instance, if your cost of college annually is $10,000 and your child was only eligible for $7,000 in other financial aid, then you’d be able to get a Plus Loan for the remaining $3,000 to bridge the financial gap.
However, there are other criterial and requirements that must be met to get a Direct Plus Loan…
- Student must be a dependent
- Parent must be biological or adoptive parent
- Student must be enrolled at least half time
- Subject to credit history review of the borrower
- Other specific requirements
A Plus Loan is taken out by the parent who needs to fill out the proper application, meet all deadlines and also complete a Master Promisary Note just like any other type of loan. The Direct Plus loan can really be a lifesaver for those students and parents who just need to make ends meet with regard to college and the associated costs. These types of FAFSA Loans can make your college of choice affordable!
Hopefully this gives you a clearer picture of what types of loans are available through FAFSA. However, you cannot just apply directly for these FAFSA Loans without filling out the FAFSA Application first. From there, you will be directed on what steps to take in order to cover your college costs.
If you missed our last posts in the FAFSA Series, don’t miss another one! Sign up for our FREE email newsletter HERE…
Part VI: What Does FAFSA Cover?
Part V: Who Files FAFSA For Divorced Parents?
Part IV: FAFSA Deferred Compensation
Part III: What is an EFC Number on a FAFSA Application?
Part II: When to Fill Out The FAFSA for Fall 2011
Part I: What is the Purpose of the FAFSA Application?