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Federal
Student Loan Programs
Stafford
Loans
Federal
Stafford Loans are student loans that must be repaid
and are available to both undergraduate and graduate
students.
There
are two types of Stafford Loans:
Federal
Family Education Loan Program (FFELP) loans are
provided by private lenders, such as banks, credit unions
and savings & loan associations. These loans are guaranteed
against default by the federal government.
Federal
Direct Student Loan Program (FDSLP) loans, administered
by "Direct Lending Schools", are provided by the US
government directly to students and their parents.
All
Stafford Loans are either subsidized (the government
pays the interest while you're in school) or unsubsidized
(you pay all the interest, although you can have the
payments deferred until after graduation).
To
receive a subsidized Stafford Loan, you must be able
to demonstrate financial need.
With
the unsubsidized Stafford loan, you can defer the payments
until after graduation by capitalizing the interest.
This adds the interest payments to the loan balance,
increasing the size and cost of the loan.
All
students, regardless of need, are eligible for the unsubsidized
Stafford Loan. Stafford Loans allow dependent undergraduates
to borrow up to $2,625 their freshman year, $3,500 their
sophomore year and $5,500 for each remaining year (independent
students and students whose parents have been turned
down for a PLUS loan can borrow an additional unsubsidized
$4,000 the first two years and $5,000 the remaining
years). Graduate students can borrow $18,500 per year,
although only $8,500 of that is subsidized. There are
also cumulative limits of $23,000 for an undergraduate
education and a $65,500 combined limit for undergraduate
and graduate. (For independent students and for students
whose parents were denied a PLUS loan the cumulative
limits are $46,000 and $138,500, respectively.)
Many
students combine subsidized loans with unsubsidized
loans to borrow the maximum amount permitted each year.
Stafford Loans have variable interest rates (based on
91-day T-bill rate + 1.7% during school with an additional
.6% increase upon graduation) capped at 8.25% or less,
depending on yearly adjustments. All lenders offer the
same rate for the Stafford Loan, although some give
discounts for on-time and electronic payment.
Perkins
Loans
Perkins
Loans are low-interest (5 percent) loans that must be
repaid; the maximum annual loan amount is $4,000 for
undergraduate students and $6,000 for graduate students.
The
Perkins Loan is awarded to undergraduate and graduate
students with exceptional financial need. This is a
campus-based loan program, with the school acting as
the lender using a limited pool of funds provided by
the federal government. (The Perkins Loan is the best
student loan available. It is a subsidized loan, with
the interest being paid by the federal government during
the in-school and 9-month grace periods. There are no
origination or guarantee fees, and the interest rate
is 5%. There is a 10-year repayment period.
The
amount of Perkins Loan you receive is determined by
your school's financial aid office. The program limits
are $4,000 per year for undergraduate students and $6,000
per year for graduate students, with cumulative limits
of $20,000 for undergraduate loans and $40,000 for undergraduate
and graduate loans combined. Institutions participating
in the Expanded Lending Option (ELO) may offer higher
loan limits for the Perkins Loan. To participate in
the ELO, a school must have a default rate no higher
than 15%. The annual loan limits are increased by $1,000
each and the cumulative limits increased by $5,000 and
$10,000, respectively.
The
Perkins Loan also offers better cancellation provisions
than the Stafford or PLUS loans.
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