Federal Loan Programs

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Federal Financial Aid

Federal loans are a form of federal financial aid. Federal loans are designed to help cover the costs of obtaining an education that grants, college scholarships, and family and student contributions can't cover. Since they are loans, federal loans have to be paid back with interest. Because federal loans are legally binding contracts, you should think carefully about, and plan for, your ability to pay them back before you commit to one.

There are 4 types of federal loans:

  • Stafford Loans
  • Perkins Loans
  • PLUS Loans
  • Consolidation Loans

Stafford Loans

Stafford loans are for students pursuing undergraduate, graduate or professional degrees. You must be attending school at least half-time to be eligible for this type of federal loan. As of July 1, 2007, Stafford loan limits were increased and borrowing fees were decreased.

There are two types of Stafford Loans: subsidized and unsubsidized. The U.S.Department of Education pays (subsidizes) the interest accrued on subsidized Stafford Loans during certain periods. To receive a subsidized Stafford Loan, you must demonstrate a financial need. An unsubsidized Stafford loan, however, does not have this requirement.

You can get a Stafford Loan from one of two programs:

  • William D. Ford Federal Direct Loan (Direct Loan) Program. The federal loans given through this program are called Direct Loans. With this program, parents and students borrow directly form the Department of Education. This program provides subsidized and unsubsidized loans. These federal loans are repaid directly to the Department of Education.
  • Federal Family Education Loan (FFEL) Program. These federal loans are referred to as FFEL loans. The funds for FFEL loans are provided by private lenders but are guaranteed by the U.S. Government. FFEL loans include subsidized and unsubsidized FFEL Stafford Loans, FFEL PLUS Loans and FFEL Consolidation Loans. You have to repay these loans back to the bank or private lender that issued them.

Choosing a Stafford Loan provider (Lender)
When you get a Stafford Loan, your school will give you the option of choosing a lender from their preferred-lender list. (Only about 20 percent of schools have students borrow directly from the federal government through the Direct Stafford Loan Program; at all other schools, you will need to choose a lender.) The preferred lender list is only a starting place when shopping for financing.

Read the Lender's Fine Print
Check the terms and fine print carefully. Not all students can take advantage of all the benefits lenders advertise. Choose the loan that offers the best upfront discounts, such as waiving both origination and default fees, or other immediate discounts. Benefits that are promised several years down the road usually won't help you if you consolidate your loans or get into financial trouble.

Perkins Loans
  • Borrow up to $4,000 per year of study, depending on need, your school's funds, and when you apply
  • 5.0% fixed interest rate
  • No loan charges or fees other than the interest on the loan
  • You get your loan money through your school
  • No payments until 9 months after you graduate, drop to half-time, or leave school

Perkins Loans

A Federal Perkins Loan is a low-interest loan for both undergraduate and graduate students with exceptional financial need. Federal Perkins Loans are made through a school's financial aid office. Your school is your lender, and the loan is made with government funds. You must repay this loan to your school.

Your school will either pay you directly (usually by check) or apply your Perkins loan to your school charges. You'll receive the loan in at least two payments during the academic year.

Borrow up to $4,000 for each year of undergraduate study
You can borrow up to $4,000 for each year of undergraduate study (the total you can borrow as an undergraduate is $20,000). The amount you receive depends on when you apply, your financial need, and the funding level at the school.

Repaying your school for your Perkins loan
If you're attending school at least half time, you have nine months after you graduate, leave school, or drop below half-time status before you must begin repayment. This is called "grace period." If you're attending less than half time, check with your college or career school to find out how long your grace period will be. For more information on repaying and your obligations as a borrower, click on the "Repaying" section of this Web site.

PLUS Loans
  • Borrow up to the cost of your attendance minus any other financial aid you receive
  • Fixed interest rates of 7.9% for a Direct PLUS loan and 8.50% for a FFEL PLUS Loan
  • Loan fee of no more than 4%
  • You get your money through your school
  • No payments until 60 days after all the money has been paid out to you (parents' PLUS loan) or on the date of the last payout (grad or professional student PLUS loan)

PLUS Loans

PLUS Loans for Parents
Parents can borrow a PLUS Loan to help pay your education expenses if you are a dependent undergraduate student enrolled at least half time in an eligible program at an eligible school. PLUS Loans are available through the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Your parents can get either loan, but not both, for you during the same enrollment period. They also must have an acceptable credit history.

PLUS Loans for Graduate and Professional Students
Fortunately, graduate and professional degree students are also eligible for federal PLUS Loans. You can get a PLUS loan through the Direct Loan and FFEL Loan programs, and borrow the cost of your attendance minus other estimated financial assistance. To be eligible for a PLUS loan, you must fill out a Free Application for Federal Student Aid (FAFSA) and apply for and receive the annual maximum loan under the federal subsidized and unsubsidized Stafford Loan program. You must also have an acceptable credit history.

Consolidation Loans

A Consolidation Loan is a federal loan that allows the borrower to combine multiple education loans into a single loan with one monthly payment.

Source: "Funding Education Beyond High School," Student Aid on the Web, U.S. Department of Education,