Government Loans
For Your Online Degree

If you’re looking to get a government loan to help you get a college or university degree online, the current situation represents a bit of a “good news/bad news” scenario:

The good news: The U.S Government has recently made an important move that should open up more aid to distance learners specifically. For years, government loans were handed out under the terms of the Higher Education Act of 1965, which included the so-called “50 per cent rule.” This required that students be present in a brick and mortar classroom at least 50 per cent of the time in order to qualify for government aid. But this rule, originally designed to keep a lid on phony degree programs and students who signed up and didn’t bother to attend classes, was scrapped by Congress early in 2007. As a result, you can now qualify for almost all the same loans and grants for college if you are an elearner (assuming you get the required number of credits) as you can if you’re at a campus-based school. See our article on the scrapping of the 50% rule.

The bad news: Filling out the most widely used form for government aid, the “FAFSA” application, is still a gigantic amount of work which requires you to provide a huge amount of financial information, whether you are pursuing an online degree or a tradition college course of study. The best start in looking for any kind of government money is to find out on your school’s website if they participate in federal loan programs.

Pell Vs. Stafford Loans
There are two main types of financial aid offered by the federal government that can help students pursuing university degrees online: Pell Grants and Stafford loans.
Pell grants: Federal Pell Grants are given on the basis of need, to undergraduate students working toward their first bachelor’s degree. You may receive up to $4,050 in aid per year, based on the need you demonstrate by filling out the federal Free Application for Student Financial Aid (FAFSA) form. The grant cannot exceed half of the total cost of your annual tuition. In the past, Pell grants were only available to students enrolled on a full-time basis. They are now available to part-time students, but the grant is limited according to the percentage of your time is dedicated to school.
Stafford loans: Stafford loans are, as the name implies, loans from the government and not outright grants. In other words, they must be paid back. They do, however, offer some distinct advantages over the other types of loans that might be available to a distance learner just starting out in life. The interest rates are generally lower than most other loans, there are no origination fees, and you will have 10 years, in some cases even more, to repay your debt.

As with Pell Grants, you must demonstrate a need to qualify for a Stafford Loan. However, in this case, “need” is a more subtle thing. The get a “subsidized” Stafford, you must show (again, by filling out that long, complicated FAFSA application) that your total cost of school – minus what your family will contribute to your education – puts you in a position of financial need. There is an “unsubsidized” version of the Stafford Loan available to students who cannot demonstrate need, but it is offered at a higher interest rate.

The formulas for Stafford Loans get a bit complicated. On a top-line basis, undergraduates can borrow almost $50,000 over four years in an unsubsidized Stafford Loan, and about $25,000 over four years on the subsidizes version. Both these types of loans offer a “grace period,” which means you do not have to begin repaying them until after you finish school. That represents a crucial advantage over most private loans for education.

Next: Less-known government loans.