4 Things You Need to Know About Federal Student Loans

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It’s that time of year when parents and students are thinking about college loans.

A few days ago, I wrote a college blog post that answered this question: Federal Student Loans: Where Do I Apply?

Today, I want to answer three questions about Stafford Loans, which are the most popular federal student loans.

Here’s the first question:

Question No. 1: Are there different kinds of Stafford Loans?

Yes there is. There are unsubsidized Stafford Loans and subsidized Stafford Loans.

The best loan to get is the subsidized Stafford. The student loan interest rate on an unsubsidized Stafford is lower. Beginning July 1, the interest rate will be 4.5%. In comparison, the student loan interest rate on an unsubsidized Stafford is 6.8%.

Here’s the other important difference: Students who qualify for a subsidized Stafford Loan don’t have to pay the interest that accrues while the student is in college. The federal government pays for all this interest. Borrowers through the other Stafford don’t get this cushy deal.

Question No. 2: How do you know if you qualify for a subsidized Stafford or an unsubsidized Stafford loan?

Your college will tell you. Look on the financial aid package that your college sent you. In the package you should see what the breakdown of subsidized versus unsubsidized Stafford’s. A federal formula is used to determine if a student, based on a family’s finances, is eligible for the better subsidized deal. You can see both kinds of Stafford Loans in your package.

3. When should I apply for my federal student loan?

You can ask your college’s financial aid office, but big changes in the federal student loan program start July 1. I’d wait until then.

4. What happens if I need to borrow more than the Stafford loan program allows?

Federal student loans are the superior loans — by far — for students who need to borrow. I’ll be covering other student and parent loan options soon.

Lynn O’Shaughnessy is the author of The College Solution and she also writes a college blog for CBSMoneyWatch.com.

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