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.
