Unlike private education loans, these loans are “guaranteed” by the federal government (meaning your lender will be reimbursed for the loan if you default).
Some federal loans are subsidized. Some are based on demonstrated financial need—others are based on the borrower’s total Cost of Attendance (COA). Federal loans are only available to US citizens or permanent residents.
There are four main kinds of federal loans for which you may be eligible:
With the exception of a Consolidation Loan, which is basically used to pay off or “refinance” other loans you have that are already in repayment, you must complete the Free Application for Federal Student Aid (FAFSA) in order to apply for federal loans, including Stafford and Grad PLUS, but not for private loans if that is all the aid you want.
You should consider applying for federal loans first as they nomally have the best interest rates. Keep in mind the following facts:
- Terms and conditions, including repayment options, may be more favorable on federal loans
- Some federal loans are subsidized, some unsubsidized
- Some federal loans are based on financial need, some are based only on cost
- Stafford Loans are often the first federal loans for which the borrower will apply
- Grad PLUS Loans represent an alternative to private loans for borrowers who need supplemental funding beyond Stafford Loans
- Federal loans now carry fixed interest rates
Once you receive your financial aid award letter and you know how much you are eligible for in terms of Stafford and Grad PLUS, you will need to be sure you have completed a Master Promissory Note (MPN) for these loans in the amounts you wish to borrow. Contact your school’s Financial Aid Office if you have questions about the MPN.
There are other options, should you decide you want or need loan assistance but do not want to complete the FAFSA and go through what some would consider traditional channels for financial aid. This would likely involve your applying for a private loan directly with a lender, perhaps as the result of what is referred to as “Direct to Consumer” (DTC) advertising.
