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Federal Student Aid
—Learn about the various types of federal student aid

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Stafford Loans: 2 Types

1) Direct Stafford Loans

• Funds are provided directly by U.S. Government

• The Direct Stafford Loan is a “Subsidized Loan”

• Student must be enrolled at least ½ time (other federal loans don’t have this requirement)

• Uses FAFSA as application

A subsidized loan means that no interest is charged on the loan until repayment of the loan begins—which is usually 6 months after graduation, leaving school or dropping below ½ time status.

2) Federal Family Educational Stafford (FFEL)

• Lent to student through a lender

• The FFEL is an “Unsubsidized Loan”

• Student must be enrolled at least ½ time (other federal loans don’t have this requirement)

• Uses separate application

• 4% fee deducted at disbursal to help defray cost of the loan

A Special Note:

Before July 1, 2010, Stafford, PLUS, and Consolidation Loans were also made by private lenders under the Federal Family Education Loan (FFELSM) Program.

As a result of recent legislation, no further loans will be made under the FFEL Program beginning July 1, 2010. All new Stafford, PLUS, and Consolidation Loans will come "directly" from the U.S. Department of Education under the Direct Loan Program.

The programs are mentioned on this page so that those who currently have the types of loans mentioned above or below are aware of how the loans work and their responsibilities if they have any of the loans mentioned above or below.

In an unsubsidized loan interest can be:

1) Capitalized—Interest accumulates and is added to the principal during the “life of the loan” until principal reduction payments are required.

2) Accrue—Interest that has accumulated between the most recent payment.

A capitalized FFEL costs more over the long-term and those who use this option are usually not in a position to pay interest while the student is “in” school.

A Capitalized FFEL costs more because the interest that accumulates is added to the principal balance, and subsequent interest is charged on the entire outstanding balance. All Stafford’s usually have below market interest rates.

What is loan deferment?

In simple terms it is a temporary postponement of payments on the loan.

If a student has a subsidized loan, interest will not be charged during the period of deferment.

If a student has an unsubsidized loan, the interest is capitalized during deferment unless the student chooses to pay the interest as it accrues during deferment.

A deferment is normally allowed only after proving a hardship or other qualifying reason to the agency, sender, or holder of the loan.

Hardships & Other Deferment reasons Include:

• At least half-time enrollment at a post- secondary school

• Enrollment in an approved fellowship program

• Enrollment in an approved rehab training program for the disabled

• Economic Hardship (For up to 3 years)

• Former student’s inability to attain full-time employment (For up to 3 years)

What is loan forbearance?

Forbearance is a period of time when repayment of a loan is temporarily postponed upon request of borrower and authorization by the lender.

While forbearance also postpones repayment, subsidized loans accrue interest during the period of forbearance.

Direct Stafford Loans can be repaid under several payment plans.

Each payment plan has a different term ranging from 10 to 32 years.

FFEL Stafford Loans can also be repaid under several payment plans, but cannot exceed a 10 year term.

PLUS (Parent Loans for Undergraduate Students)

• Allows parent with good credit history to borrow fund for child’s educational expenses

• Parent completes PLUS loan application and Promissory Note

• Child must be dependent and enrolled half-time

• 4% fee deducted at disbursement to help defray cost of the loan

• PLUS is a “non-subsidized loan”

• PLUS loan must be repaid within 10 years.

Another Key Point To Remember about A PLUS Loan:

As long as parent has good credit they may be entitled to receive a loan equal to the cost of attending less other available financial aid.

Say it costs $10,000 for your child to go to college and your child receives $7,500 in other aid. The total of $2,500 would be the maximum loan amount allowed.

Consolidation Loan

• A consolidation loan is simply the combining of various “federal student loans” into one loan.

• You can benefit by having the term extended

• You can benefit by having the term shortened

• You will only have one payment

• Your interest rate could possibly be reduced

Pell Grants

One of the most popular of the Federal Student Aid that is available. A Pell Grant is not a loan, but a grant from the federal government that does not need to be repaid.

The EFC calculation is used to determine a students eligibility (based on students financial need). Pell Grants are awarded to undergraduate students only. If you are a graduate, professional or post graduate student you will have to find other means to finance your education.

There are maximum limits and the awards depend on funding but is usually several thousand dollars at a minimum, however the actual amount awarded will be based on your EFC calculation and funding.

FSEOG Program (Federal Educational Opportunity Grant)

• A grant or outright gift, which need not be repaid

• Awarded to undergraduates with low EFCs (Expected Family Contribution)

• Gives “priority” to students who receive Pell Grants

• Grant ranges from $100 to several thousand

The major difference from the Pell Grant is that the U.S. Department of Education “guarantees” that each eligible school will receive sufficient funds to pay federal Pell Grants to “ALL” eligible Students.

However, with an FSEOG the grant is made available to eligible students “IF” funds are available.

Once all funds are used up at a school, the remaining students “will not” receive a grant.

If you feel you or your child might be eligible or if you want to make yourself eligible you should apply early---try to be one of the early applicants if you plan on attending a participating school.

Federal Perkins Loan

• It is a loan that is provided to undergraduate and graduate students that have exceptional financial need such as very low EFCs (Expected Family Contributions).

• The loan is made with government funds “but” the school is the lender

• The student “must” repay the loan but it is usually at a low interest rate

• There is “no” 4% fee deducted at disbursement to help defray costs of the loan

• There is a nine month grace period after graduation, leaving school, or dropping below half-time status

• The loan must be paid off within 10 years from the start of repayment

• Deferment and Forbearance rules are fairly similar to those of the Stafford & PLUS Loans mentioned above

Perkins Loans Can Be Canceled If:

1) Death

2) Total & Permanent Disability

3) Becoming a full-time Special Education Teacher, Nurse, Medical Technician, or certain type of teacher

4) Serving in the Armed Forces

The above cancellation conditions are subject to certain tests and can be explained by the schools Financial Aid Advisor. For more info go to

State Government Aid

• Contact the school you plan on attending in your state

• Go to your states Department of Education Website

• If you are in Georgia You or Your Child may be eligible for the Hope Scholarship

Other sources:

• Aid directly from institution

• Aid from the Armed Forces

• Other Scholarship

Civic organizations, merit scholarship, churches, religious organizations, athletic are just a few of the sources that can help with your or your child’s educational funding.

It will take effort on your part to locate and submit information to them but your efforts-- could prove worthwhile--as millions are provided annually through these agencies and organizations.

Other Ways To Meet Your & Your Family's Higher Education Costs If School Loans & Federal Loans Are Insufficient


* Can often be the best choice from a financial point of view after tax write-off is taken into consideration.

* You put your home at risk so use this method appropriately.

* If you refinance you will have high closing costs and you might carry the loan for a longer term.

* Be aware of the effect of a home equity or refinance on your and your family's eligibility for grants and other aid.


* They often are at a higher fixed rate.

* Ususally have flexible terms and minimal credit check.

* Automatic debit transfers and timely payments can reduce interest rate.

* Offers penalty free deferrals while your child is in school and/or if you were to lose your job.


Nonprofit Loan:

* They offer fixed rates that are usually cheaper than that of a PLUS LOAN.

* Many non-profit loans are State-sponsored so be sure to check with your State.

* Some non-profits will transfer loans to kids with good credit.

Go to to learn more about programs in your state.

Private Loans:

* They offer low initial rates for the most credit worthy borrower's.

* The loans usually are offered at various rates.

* The higher your credit score the better rate you will get.

* The loan can be transferred or signed over to your child if they have good credit.

Go to,, and/or to learn more about the private loans that are available in the marketplace.

Make it a point to keep your and your child's education lending at the lowest level possible.

Be sure to pay off all of your education and other debt in a timely manner, otherwise you and/or your children could be saddled with debt for years.

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About This Article:


The above article was written by Thomas (TJ) UnderwoodThomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia. 

He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and  Managing & Improving Your Credit & Finances for this MILLENNIUM.

In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.

He is the creator of where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. 

He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind"  and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.

You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.  You can also get highly relevant tips on "living your life more abundantly" and link to and possibly earn revenue by logging on to

He is also an IRS registered tax planning professional with over 30 years of tax experience and can be reached at:



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