TYPES OF FEDERAL STUDENT LOANS

What they never let you know about, how do student loans work

In my last post/article, I gave an overview of how student loans work. If you missed reading that article, I would encourage you to do so, by clicking or going here. In today’s article I will touch on the highly sought after Federal Student Loans. Now for those who may be new to Federal Student Loans, and are not familiar with the term, I will give a brief definition. Federal Student Loans are loans that are either issued directly by the United States Government: (The Department of Education) or by banks that are government backstopped. This means the banking institutions issue the loans, and if any of the students cannot pay back the loans, the banks are made whole by the Government. The banks win again!! Okay, I am throwing a jab here, but it really is well deserved.

There are two main types of Federal Student Loans, branches for the lack of a better word. They are Federal Student Loans that fall under the Stafford Loan Program, and those that fall under the Perkins Loan Program. Since the Stafford Loan is now the most popular loan of choice, or should I say the only one really being provider to borrowers. I will focus the rest of this article on covering them. However, rest assure I will cover the Perkins Loan as well, just not as detailed at this time. The reason being, it is stiff, stifling competition and really hard to obtain

(they are not seen as often). On a side note and definitely a point to remember, there is another type of Federal Student Loan called the PLUS Loan. This loan is a doozy, and I will be sure to cover it further in the future

Well, back to the Stafford Loan. It is broken into two Federal Stafford Loan Programs. The Direct Loan, coined or credited as the William D. Ford loan. These loans are issued by the Department Of Education. It is important to know and rarely discussed, but as of July 1, 2010, all Federal Student loans are now Direct Loans, through the United States Department of Education. Why is this significant? It is one of those hidden figures used in touting positive GDP growth.

The other is the Family Federal Education Loan (FFEL). Doesn’t family have a nice ring to it? Maybe it should, because it will take a family to pay back the burden of the debt obligation incurred taking on this type of federal student loan. To make these loans even more insidious, the loans were issued through bank institutions, and fully backed by the federal government (if they ever fall into trouble). They and all student loans stand at a precipice of a cliff, dangling and at any moment and can drop suddenly. It is no wonder after July 1, 2010 the Federal Government stopped these loans from being created. However, you best believe there are a ton of them on the market still, and when the default comes as it is now showing serious signs of a crash. The banks will be expected to be bailed out again.

I end this article with a point to ponder before continuing with types of federal student loans in my next article.

Prior to 2008 there was several hundred billion in student loan debt nationwide. It currently stands at close to 1.3 trillion dollars, and continues to grow with no slowdown in sight. Was this by accident or is something being conjured up to ensnare the public? I leave that for you to mole over.