Federal Student Loans

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The term federal student loan applies to three different types of loans, which are available through the federal government. The government has several ways to help students pay for tuition, and loans are only one of those ways.

In this publication, the discussion will be focused on three loan types: Federal Stafford Loans, Federal PLUS Loans, and Perkins Loans. As part of that discussion, we'll talk about eligibility, applying for a loan, as well as the repayment process.

Other Federal Student Aid

Additional Resources

Before we begin the discussion of federal student loans, it's worth a reminder there are other ways to help pay for college. If you are looking for student aid beyond federal loans, then check out our publication: Federal Financial Aid. In that particular article, we talk about student grants and work study programs, in addition to a brief discussion of student loans.

Federal Student Loan Guidelines

There are only a few student loan guidelines that are worth mentioning. The first guideline being that, by definition, these are loans to the student. That means 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 college'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, which outlines the aid package the school is willing to offer the student. Let's take a closer look at each of the federal loan programs.

Federal Stafford Loans

Federal Stafford Loans are made 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 are eligible to receive a 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. 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 the 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 of students. 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 can be obtained from the school's financial aid office.
FFEL PLUS Loan - The student's parents must complete a PLUS Loan application to determine eligibility for this loan. This application can also be obtained from the school'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 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.

In 2011 / 2012, 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 $5,500 for each year of undergraduate study. The total amount the student can borrow as an undergraduate is $27,500.
Borrow up to $8,000 for each year of graduate or professional study. The total amount a student can borrow under this program is $60,000. This also includes any Federal Perkins Loans the student may have borrowed as an undergraduate.

A Perkins Loan carries with it a fixed interest rate of 5% (2011 / 2012) 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 repayment.

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