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Should You Accept Federal Student Loans?

August 8, 2012

Financial aid isn't the easiest thing to plan for, and eventually, you have to make hard decisions, such as how much debt can you handle? Many students and their families opening financial aid award letters recently saw that subsidized and unsubsidized loans were being offered as part of their entire package, including the other "free" money awards. There are a few different types of federal loans, and you had to select that you wanted these offers on the FAFSA, so if you were expecting to see aid from student loans but don't have any, you may need to check your FAFSA report. The main loans to look out for include Stafford subsidized loan, Stafford unsubsidized loan, Federal Perkins Loan, and Parent Plus loan. Here's a bit more information about each one.

Stafford Loans

A Stafford Subsidized Loan is a federally guaranteed loan that is based on financial need. You also do not pay interest on the loan while you are still in school at least half time. You may also be eligible for future deferment. Basically, the government "subsidizes," which is a fancy word for pays, the interest during the time that you are in school. A Stafford Unsubsidized Loan is the other federal that that does start accruing interest even while you are in school. This loan also isn't based on financial need. You should always accept a subsidized loan for a small amount if you need some extra help, as this is the better of the two choices. If you are running out of money and need to use an unsubsidized loan, only use a small amount.

Federal Perkins Loan

This is a low interest loan that helps students who have a high financial need. Students attending one of the 1,700 participating schools may be eligible for this aid. This is an excellent choice for a loan because you can actually have your loan forgiven if you go into teaching or if you join the Peace Corps. In addition, you can defer payments while enrolled and you can also contact the school for forbearance if you have issues paying for the loan in the future.

Parent PLUS Loan

For those students who are dependent on your parents, they may apply for a Direct PLUS Loan to help pay off education expenses, however there are some eligibility rules. In particular, the parents must be the student's biological or adoptive parent. A stepparent may be eligible, in some cases. The student must be enrolled in at least half-time at a school that participates in the Direct Loan Program. In addition, the parent can't have an adverse credit history, and the student and parent must be a U.S. citizen. Typically, you should look for other loan options, such as Stafford and Perkins before choosing the Parent PLUS option. If you do have to use this option, just borrow a small amount.

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