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Federal Guaranteed Student Loan

Receiving a college education may be the single most important accomplishment that one may achieve in their entire life time.

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In 1965, the United States Congress created the Federal Family Education Loan Program to provide private and public educational aid to students and their parents via a federal guaranteed student loan and other financial aid programs. Since then as of 2008, the program has become the largest financial aid source and has provided families with over $567 billion worth of low interest loans. To receive the federal guaranteed student loan, the applicant must first complete the Free Application for Federal Student Aid electronically, print the form from online, or call the Department of Education’s toll free number and request a paper copy. The US Department of Education reported that in 2006/2007 academic year over nine million students submitted the FAFSA.

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In 2007, Congress enacted The College Cost Reduction and Access Act, which proves highly beneficial to current and most especially, prospective college students.

Some new pertinent points regarding federal student loans include:

  • Increased competition between private entities issuing federal loans
  • Looser definitions of economic hardship situations for forbearance
  • Interest rate reductions on Stafford Loans
  • Increased minority grants, loans, and programs for postsecondary education
  • Easier Perkins Loans repayments plans
  • Increased cancellation programs for public and armed service members

The American government, with assistance from the Department of Education, then outsources lending to students through private lending companies. Some well-known examples of private lending companies offering student loans in conjunction with the federal government include Sallie Mae and a whole host of other commercial banking institutions. The prospective borrowing college student must also fill out a separate application for the private lending company. Then, the school the student plans to attend must estimate the student’s total amount of tuition and living costs for one academic year and report back to the lending institution. The institution then does a credit check and financial history report to determine whether the student or the student’s family is financially capable of taking on the loan. Fortunately, for students and their families, this authorization process generally encompasses a matter of a few minutes to a few days at most.

The act calls for gradual increases in loan amounts, decreases in interest rates, and increases in availability of aid to students. Considering an estimated 50% of postsecondary students utilize some form of government financial aid according to Department of Education, the gradually implemented terms will undoubtedly aid millions of students from the year 2008 until the act expires in 2012. The notable example of the act influencing any federal guaranteed student loan is in the Stafford Loan. As of 2007, the Department of Education and affiliate lending institutions offered subsidized and unsubsidized Stafford Loans with an interest rate of 6.8%. In accordance with the new act, the interest rate will decrease to 6% for the academic calendar beginning in 2008, and by the academic year beginning in 2011, the rate will rest at an astonishingly low level of 3.4%.

Loan repayment on a guaranteed federal student loan starts after a six-month grace period following graduation. Repayment plans vary, depending on the type of loan and the lender. Using an example of the subsidized Stafford Loan with the new federal guaranteed student loan guidelines show how beneficial the new terms truly are. For a student hypothetically borrowing $10,000 to cover the cost of one academic year at an institution under the 2007 terms, the interest amount paid by the student after a term of ten years is $3,809.66. Hypothetical repayment under the 6.0% interest rate offered in the 2008 terms leads students to owe $3,322.48, or $487.18 less. The budgeted 2011 terms, in contrast with the 2007 rate, would reduce eventually interest payments to $1,810.13, or a substantial $1999.53 in four short years. Finding out more information is the only responsible course of action when garnering funds for college through federal loans.

Interested in a federal guaranteed student loan?
Apply for a federal guaranteed student loan today.