Federal Student Loans

The term federal student loans really only applies to three different types of loans that are available through the federal government. That's because the government has several ways to help students pay for tuition, and loans are only one of those ways. So in this publication we are going to stay focused on three loan types - Federal Stafford Loans, Federal PLUS Loans, and Perkins Loans.

Other Federal Student Aid

Looks like we are going to break the promise right away and mention a couple of other forms of federal aid available to students. We will do that just in case there is a good chance that these topics interest you too. If you are looking for student aid beyond federal loans, then check out our article on Federal Financial Aid.

Additional Resources

In that particular article we talk about student grants, and work study in addition to a quick mention about student loans. Now back to the topic at hand, federal student loans.

Federal Student Loan Guidelines

There are just a couple of guidelines concerning student loans that are worth a quick mention. The first guideline being that, by definition, these are loans to the student. That means that the loans need to be repaid back to the lending institution.

The second guideline is that most federal student loans are based on demonstrated financial need. In order to calculate the student's financial need, the student needs to complete a Free Application for Federal Student Aid or FAFSA. Once that application is completed and verified to be correct the student will get a final Student Aid Report or SAR. One of the items listed on the SAR is the Expected Family Contribution or EFC.

The SAR will be used by the student's financial aid office to determine eligibility for all forms of federal aid - including federal student loans. The financial aid office will then prepare an Award Letter outlining the aid package the school is willing to offer the student. So let's take a closer look at each of the federal loan programs.

Federal Stafford Loans

Federal Stafford Loans are made to available to students as part of two loan programs - the William D. Ford Federal Direct Loan Program (Direct Loan) and the Federal Family Education Loan (FFEL) Program. As long as the student is enrolled at least half time they can receive Federal Stafford Loan. There are two forms of Stafford loans, only one of which is based on demonstrated financial need:

Subsidized Stafford Loans - This type of loan is awarded based on financial need and no interest is charged until repayment of the loan begins.
Unsubsidized Stafford Loans - This loan is not based on demonstrated financial need and interest accumulates while the student is still in school.

The limits for Stafford loans depend on the year of attendance and the student's dependency status. And Stafford loans have a dual structure when it comes to interest rates: the interest rate is lower when the student is in school and for any subsequent grace period. Once a student is in repayment, the interest rate on a loan will increase. For more complete information, see our article dedicated to this topic - Stafford Loans.

Federal PLUS Loans

Federal PLUS Loans are unsubsidized student loans that are made to parents. If the student is not a dependent of their parents, they are not eligible for PLUS loans; however, the student is eligible to borrow more money through the Stafford Loan program. The Federal PLUS Loan program comes in two forms:

Direct PLUS Loan - The student's parents must complete a Direct PLUS Loan application and promissory note to determine eligibility for this loan. This application is can be obtained from the student's financial aid office.
FFEL PLUS Loan - The student's parents must complete PLUS Loan application to determine eligibility for this loan. Again, this application is can be obtained from the student's financial aid office.

Federal Perkins Loans

Federal Perkins Loans are low-interest loans that are available to both undergraduate and graduate students with demonstrated financial need. In the case of a Perkins Loans, it is the student's school that is the lending institution. The loan itself is made with government funds, and the student's school contributes to the funding. With Perkins Loans, repayment is made to the school, not the Department of Education or the federal government.

Depending on when the student applies, the level of need that is demonstrated and the level of the school's funding, the student may be able to:

Borrow up to $4,000 for each year of undergraduate study - the total amount the student can borrow as an undergraduate is $20,000.
Borrow up to $6,000 for each year of graduate or professional study. The total amount a student can borrow under this program is $40,000. That also includes any Federal Perkins Loans the student may have borrowed as an undergraduate.

A Perkins Loans carries with it a fixed interest rate of 5% for the duration of the ten year repayment period. The Perkins Loan Program also has a nine-month grace period. This means that a student borrower will begin repayment during the tenth month after graduation or withdrawal from their college or university.

Finally, because the Perkins Loan is subsidized by the federal government, interest does not begin to accrue on the loan until the borrower begins to repay their loans.

About the Author - Federal Student Loans

College / Student Loan Resources on the Web