Federal student loans come from both federal agencies and participating lenders in the Federal Family Education Loan Program.  The U.S. Department of Education offers student loans from the Federal Direct Loan Program.  Both programs include the standard federal student loans, which are the Stafford student loans, PLUS loans and federal consolidation loans.

There is hardly any difference between the Direct Loan Program and the FFEL.  Your school can tell you which program they use.  Some of them even use both, in which case you can choose which one you prefer.  Although both student loans are similar, when dealing with the Direct Loan Program you conduct all business through the Direct Loan Servicing Center, which is operated by the federal government.  When dealing with the FFEL student loans, you deal with the approved lender.

The Direct Loan Program features student loans that are managed directly through the federal government, feature low interest rates and fees, have flexible repayment terms, and can be managed online.  The Direct Loan program also has Stafford loans, consolidation loans, and

PLUS loans for parents and graduates.

To qualify for direct student loans you must be a United States citizen, eligible resident or non-citizen, have at least half-time enrollment in a college or university, have not defaulted on a student loan, and meet the qualifying income bracket determined by your school and the federal government.

You must complete the Free Application for Federal Student Aid (FAFSA) and have it filed by the earliest deadline.  If you do not file a FAFSA, you will miss out on many opportunities for student loans and federal student aid.  If you experience problems filling out your FAFSA, contact the financial aid specialist at your school right away.

The colleges who have accepted you will send award letters.  These award letters indicate the types of financial aid you will be offered.  When you choose a PLUS loan or a Direct Stafford loan, you will have to sign a Master Promissory Note.  The Master Promissory Note is a legally binding contract with the Department of Education.

Direct Stafford Loans have four different payment plans, which are the Standard Plan, featuring ten years of fixed monthly payments.  You can choose the Extended Plan which features either fixed or graduated plans for a total of twenty-five years, contingent on at least $30,000 of debt.  There is a Graduated Plan, in which the loan payments escalate, balloon, during a ten-year repayment period.  Lastly, there are the Contingent student loans, where payments are recalculated annually based upon income.

Student loans can be a necessary, but very complicated matter.  You will want to involve your entire family; student and parents, in deciding which options are best to finance a student’s education.  You can also offset the necessity of student loans by starting an education savings account for your children.  The deposits into these accounts can be as high as $2000 per year, per beneficiary.  They are not tax deductible, but when the account matures, the funds can be withdrawn tax-free, as long as they are used for educational purposes.  There are also pre-paid tuition plans, where you can lock in your child’s tuition at today’s rates by pre-paying for their education now.

When it comes to finding money for college, it is best to consider all of your options as early as possible, including student loans.