How do you describe the federal student loan program? Okay, that’s complicated. Here are some key terms and players you should be aware of if you are considering using federal financial aid to pay for your education.
Key Student Loan Terms and Resources
Federal Direct Loan Program William D. Ford. As of July 1, 2010, all federal student loans have come from this program. These loans are provided by the federal government to undergraduate and graduate students and parents of undergraduate students. Interest rates on direct loans are set by Congress.
When you borrow federal student loans, the US Department of Education sends the money directly to your school, which credits it to your account and then remits any excess back to you. Over 90% of student loans made each year are federal loans.
Prior to July 1, 2010, students could borrow federal student loans through the now defunct Federal Family Education Loans Program, or FFELP. Many federal student loan benefits, including some income-based repayment plans, are available to direct loan borrowers only. However, FFELP borrowers can consolidate their loans into direct loans to become eligible for these options.
Subsidized loan or non-subsidized loan. There are two types of federal student loans available to undergraduates: subsidized loans and unsubsidized loans. Students with high financial needs are eligible for federal subsidized student loans, which offer more benefits than unsubsidized loans.
One of the main advantages of subsidized loans is that the federal government covers interest payments while you are enrolled as a student at least part-time. This means that your loan does not accumulate interest and that your loan balance does not increase while you are in school.
The government also grants interest subsidies for subsidized loans in other cases, such as when borrowers are enrolled in certain repayment plans.