The federal government would like to see as many people as possible attend a school of their choice in order to pursue a college degree. To make that happen, they have made it feasible for qualifying individuals to secure a government-sponsored loan. One type of government loan is called a Stafford loan. Here is a guide to Stafford loans.

What Is a Stafford Loan?

A Stafford loan is issued by the federal government to students who meet certain criteria. In order to qualify, you must attend a four-year college, university, or community college, or a trade, career, or technical school. You may also be able to get the loan for a web-based school that awards online degrees. The loan comes directly from the United States Department of Education through participating schools. These loans usually don’t have to be paid back until after the student graduates from school. However, students who quit school may be required to begin paying the loan back immediately.

Applying for Stafford Loans

As is the case with many government-sponsored loans, a Stafford loan requires the student to fill out an application and then be accepted. The application is called the FAFSA (Free Application for Federal Student Aid.) The application is reviewed, and if the student is accepted, they will receive a check in the mail.

Types of Stafford Loans

There are two basic types of Stafford loans: Direct Subsidized Loans and Direct Unsubsidized Loans.

Direct Subsidized Loans

Direct Subsidized Loans require a student to present proof that they need financial assistance. The loan application (FAFSA) will be reviewed and it will be determined whether or not the student qualifies, and if they do, how much the loan will be for. With a Direct Subsidized Loan, the student is not charged any interest on the loan as long as they remain in school at least half the time. They may also be allowed grace periods and deferment periods.

Direct Unsubsidized Loans

Direct Unsubsidized Loans work a bit differently. The main difference is that a student need not provide proof of financial need in order to qualify. As with the Direct Subsidized Loan, the school will determine the amount you can receive. One major difference between a Direct Subsidized Loan and a Direct Unsubsidized Loan is that with an unsubsidized loan the interest begins accruing immediately upon receiving the money. You must pay that interest even while you’re in school, even during grace periods and deferment periods. If that is inconvenient, you can allow the interest to build, but it will be added to the principal of the loan, which means the total amount of the loan will be larger than you actually borrowed. The reason for this is that you will be charged interest on the increased principal.

How It Works

After you’ve qualified for a Stafford loan, you must fill out a Master Promissory Note (MPN) which is a legally binding document. When you sign a MPN, you agree to repay the loan, plus interest and any fees that apply to the U.S. Department of Education. The MPN spells out the details of the loan, including the terms and conditions of repayment. Usually it’s only necessary to fill out an MPN once, because it will remain in effect for the next few years. The MPN will also tell you how much money you’re eligible to borrow. The school you’re attending will stipulate how much money you will receive. Under certain conditions, it’s possible to receive a Direct Unsubsidized Loan at the same time you’re getting a Direct Subsidized Loan. Your eligibility will depend on whether or not the subsidized loan covers all your educational expenses.

How the Money Is Received

The actual payment you receive will come directly from your school. Your check will usually come in two separate payments. The school uses the money to pay for your tuition, room and board, and other educationally related expenses. The amount that is left comes to you and can be used for incidental expenses.

Repayment of Stafford Loans

In addition to the amount of the loan, you will be required to pay a loan fee, which is a percentage of the amount of the loan. When you receive the first installment of your Stafford loan, you will be contacted by a loan servicer, which is the agency you’ll be dealing with for repayment. The servicer will keep you updated on the status of your loan. Upon completion of your college education, you will have a six-month grace period before you will have to begin paying off the loan. Your loan servicer will provide you with repayment details.

Obtaining money for college loans hasn’t always been easy. The traditional method of seeking government help is one way to go, but there are other ways to get the money you need for a higher education. Many people receive help from their family in the form of money that was set aside for that specific purpose, i.e., a college fund. Frequently college students seek loans from friends, family members or total strangers on a personal basis that bypasses traditional lending institutions. This is generally referred to as peer-to-peer, or P2P lending. Following are few tips on peer-to-peer lending for students.

What Is Peer-to-Peer Lending?

Peer-to-peer lending is basically a financial transaction between individuals whereby one party borrows money from another. There is the expectation that the money will be repaid, with interest, at the terms the two parties agree upon. It is considered a sincere financial transaction by everyone involved. Peer-to-peer lending is simply another form of borrowing or lending money.

How It Works

The term peer-to-peer lending can be nothing more than an exchange of money between friends over a cup of coffee, or it can be a formal financial transaction complete with a background check and a signed contract. In the case of a student borrowing money on a P2P basis it is usually a formal loan where the student approaches a lender and asks for money to help complete their college education.

Who Is Involved In Peer-To-Peer Lending?

Although a peer-to-peer loan can be nothing more formal than borrowing money from Uncle Joe and agreeing to pay him back whenever you can, a more ‘official’ version of peer-to-peer lending would be to approach a more traditional P2P lender and go through the process of applying for and receiving a loan with agreed upon conditions. Internet websites such as www.prosper.com or www.greennote.com are available to help. Their function is to put potential borrowers in touch with people or organizations that are willing to lend deserving students the money for their education. Other organizations that specialize in some aspect of peer-to-peer loans for students are Fynanz, Lending Club, and Loanio. If you spend a little time researching these places on the Internet you may be able to come up with a lender that will allow you to borrow the money you need for your education at reasonable rates.

Why Not Get a Traditional Loan?

One of the chief reasons for a student to go the peer-to-peer route to borrow money is that they may not have a good enough credit rating for a traditional loan. Some people prefer P2P because the loans are usually for a shorter term so they can be paid off quicker. If a student can procure a peer-to-peer loan and pay it off rapidly they won’t be burdened with a huge student loan debt when they graduate from college. Starting off in the workforce without a student loan hanging over their head means being able to begin saving money immediately instead of setting aside a portion of the income each month for a student loan.

Eligibility

It doesn’t matter whether you’re attending a community college, a prestigious state school, or getting your education through one of the best online schools, a loan through peer-to-peer lending can help you achieve your goal of getting a college degree. The only requirement is that you pay the money back–in full and on time. The terms of the loan may vary–some lenders require a good credit rating in order to be eligible for a loan–but if you do a little research you should be able to find a P2P lender that will work with you. As with any loan, the better your credit rating the lower your interest rate will be. Because you’re just starting out you may be required to have a cosigner in order to be eligible for a loan. One thing to be careful of is to not be so anxious to take out a loan that you don’t read the fine print in a contract. It would be a good idea to seek the advice of a loan counselor or an accountant before signing any papers.

Today’s typical college graduate will have close to $24,000 in federal student loans. Student loans can be a great way for a student who would not otherwise be able to attend college to finance his or her education.  However, the consequences of falling behind on federal student loans can be catastrophic to a young person’s credit.

Since payments start within six months of graduation, a student only has six months to find a job that will allow him or her to start making payments on the loans.
The consequences of ignoring those payments can be disastrous. Student loans cannot be discharged in bankruptcy. Even extenuating circumstances such as long-term disability cannot be used to get rid of student loan obligations. Additionally, there are no limits on what constitutes “reasonable” fees that can be charged by collection agencies once the loans go into arrears. This means that banks are free to add however much they want to the original loan amount if a graduate falls behind on his or her student loan payments.

Just missing one payment by more than 30 days in many cases will trigger an automatic notation on your credit report. Depending on your score before you made this mistake, missing a payment can reduce your credit score by up to fifty points. After you miss several student loan payments in a row, the federal government will turn the account over to a private collection agency.

By law, a bank can sue someone who is behind on his or her student loan payments and be issued a judgment for the remaining balance. In addition to this ruining the credit score and report of the person who is behind on his or her payments, this judgment can be used to garnish wages and earnings. Up to 25% of net pay, as well as the total amount of any tax refunds, and any Social Security income can be taken by a bank and applied to the balance of a student loan. Since there are no limits on fees, many people who find themselves in this situation discover that these mandatory payments do very little to actually reduce their loan balance, leaving them little hope of ever getting out of debt.

Student loans are a godsend when it comes to paying for college. But after college, they can become more of a nightmare. If you are planning on going to college, are in college, or have recently completed college then you need to know why consolidating student loans is a good idea.

If you are planning on going to college, then you will probably have to get student loans to pay for it. If you are in college, you probably already have student loans and may be getting more soon. And if you have graduated from college already, then you are likely already paying back your student loans each month. Student loan consolidation is something that can help you, no matter which of these categories you fall into.

One of the great things about student loans is that they remain deferred until at least a few months after you graduate from college. Since that’s the case, you don’t have to start paying them back while they are deferred. This leaves you with the ability to concentrate on your studies rather than having to work in order to pay for your tuition and other expenses.

One of the best things you can do is to consolidate your student loans. By consolidating the loans you have that are of the same type (subsidized, unsubsidized, and private), you can bring the number of loans you have from many, to only a few – or possibly just one. This will undoubtedly make it easier to manage in terms of figuring out how to make the payments on time, but it has another great benefit as well.

Having multiple loan payments of different amounts to make each month can be very difficult to manage, let alone afford so soon after college. But if you consolidate your student loans, you can greatly reduce this variability as well as the amount of your payments. Depending on the types of student loans you have (subsidized, unsubsidized, or private), you may be able to reduce your student loans from many to only a few – or even just one.

It’s fairly easy to consolidate your student loans too. All you need to do is contact the financial institution that holds your loans and tell them you want to consolidate your student loans. They will know what you mean for sure and will likely have a standard process for you to follow to get it done. You’ll probably have to fill out and send in a form, they’ll put together the package for you, and you’ll just have to approve it with the new interest rate and repayment period. That’s it, you’ll be done.

Consolidating student loans is a good idea for anyone with multiple student loans. It’s easy to do, and will make your life easier as well after it’s done. So if you want to save yourself from possible confusion, stress, and lower your monthly payments on them, consolidate your loans as soon as you can.

For students who have borrowed money to go to school, consolidating student loans will help you manage and control the repayment. You can find student loan consolidation rates to improve your repayment ability.