Federal Student Loans Are Easy

The Health Education Reconciliation Act of 2010 mandated that all federal student loans originate from the Department of Education. Before this act, banks and financial institutions acted as middlemen and charged fees for loans that were guaranteed by the U.S. government. The 2010 act saved over $6 billion by removing the banks from the process. This has also eliminated much confusion and discontent that used to be voiced by students who felt they were being ripped-off by the banks. 

One of the attractive features of the federal program is the provision for student loan repayment. As long as a student is enrolled at least half-time at a college or university, the student loan repayment is deferred. The loan repayment starts from six months to a year after a student ends study. This is an excellent benefit that encourages students to continue their education and take master’s and doctorate programs. Also, a student can change their concentration of study without jeopardizing the deferment, so students can serially study as many subjects as they like.

Another nice feature regarding student loan repayment is the new cap on payments. Currently, students do not have to pay more than 15 percent of their monthly discretionary income towards student loan repayment. In 2014, this cap drops to ten percent, a 33% decrease. This will be welcome news to upcoming students, as it means more money to live on without undue hardship because of student loan repayment.

Some students think that federal loans can be used only for tuition. However, other covered expenses include fees, transportation, supplies, room and board.

The interest rates on federal student loans are low, usually a couple of percentage points lower than bank loans. Terms are so good that the Department of Education recommends that students first max out their federal loan potential before even thinking about a private loan, which will no doubt cost more and have less favorable terms.

You apply for a federal student loan through the online Free Application For Student Aid (FAFSA) process. This is a streamlined web form that allows you to list all the schools that interest you. After you apply using FAFSA, the Department of Education will notify each school on your list that you are potentially interested in attending. The schools then contact you and let you know the range of financial options available to you, including grants, scholarships, jobs and loans. 

When you decide on the school you will attend, the government will forward your loan proceeds to you via the school. No banks or other financial institutions are involved.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC