Federal Student Loans

When borrowing funds to pay for your education, federal loans offer a low-cost loan alternative with favorable repayment options, making them an attractive place to start. Federal student loans are currently distributed through the Direct Loan Program and the Federal Family Education Loan (FFEL) Program. The Direct Loan Program is funded directly by the U.S. government, while the FFEL Program is funded by private lenders guaranteed by the U.S. government. Both offer the same types of loans with similar benefits and rates. The decision on which program to participate in is made by your school.

Federal Stafford Loans

There are two types of Federal Stafford loans, subsidized and unsubsidized. They are available for both undergraduate and graduate students.

Subsidized Stafford Loan

If you demonstrate financial need, you can borrow a Subsidized Stafford Loan to cover some or all of that need. For a subsidized loan, the U.S. Department of Education pays the interest while you’re enrolled in school at half time status or more, for the first six months after you leave school, and during periods of deferment (when you are eligible to delay payments for qualifying reasons).

The annual limit for the Federal Subsidized Direct or FFEL Stafford Loan Program is between $3,500 and $8,500, depending on the student grade level.

Unsubsidized Stafford Loan

An Unsubsidized Stafford Loan is not based on financial need. With this type of loan, you are responsible for paying interest on the loan from the time the loan is disbursed until it’s paid in full. You can choose to pay the interest as you go along. Or, you can allow the interest to accrue (accumulate)—for example, while you’re in school—and have the interest added to the principal amount of your loan later. This means the interest will be “capitalized.” Keep in mind that if interest accumulates, the total amount you repay will be higher than if you paid the interest while attending school.

The annual limit for the Federal Unsubsidized Direct or FFEL Stafford Loan Program is between $5,500 and $20,500 (minus any subsidized funds received for the same year), depending on student grade level and dependency status.

To apply for a subsidized or unsubsidized Stafford Loan, you must submit your Free Application for Federal Student Aid (FAFSA). While the unsubsidized Stafford Loan is available to all students regardless of financial need, a FAFSA must still be submitted for eligibility.

Federal Perkins Loans

A Federal Perkins Loans is another low-interest loan available to undergraduate or graduate students. This campus-based loan uses government funds, including a share contributed by your school. Your school will determine your eligibility for, and the amount of, your Federal Perkins Loan, and you will be responsible for making payments back to the school.

The annual limit for the Federal Perkins Loan program is $4,000 for undergraduate students and $6,000 for Graduate and professional degree students, with a lifetime limit of $20,000 for undergraduate students and $40,000 for graduate or professional degree students, including any undergraduate loans. The amount awarded will not automatically correspond to these maximum limits, as they will depend on financial need, amount of other aid awarded, and the availability of school funds.

This loan program is also applied for through filling out a FAFSA. Your school’s Financial Aid Office will then determine your eligibility for this program and help you with the process for obtaining funds.

Federal PLUS Loan

For parents of dependent undergraduate students, the Federal Parent Loan for Undergraduate Students offers an attractive low-interest alternative to help pay for their children’s education. A PLUS Loan allows for parents to borrow up to the full cost of education minus any financial aid received. PLUS Loans are assessed at 8.5% or 7.9%, depending on whether the student chooses to utilize the Federal Family Education Loan Program or the Direct Loan program, respectively.

The maximum award amount for the Federal PLUS Loan Program is the cost of attendance minus any other financial aid received by the student.

This program also requires that the borrower have no negative credit history and that the student has already applied for the maximum annual eligibility amount under the Stafford Loan Program (subsidized and unsubsidized) before applying for a Federal PLUS Loan.

Federal Graduate PLUS Loan

Students seeking Graduate or professional degrees are now also eligible for the PLUS Loan program. All of the terms and conditions of Federal PLUS Loans also apply to Graduate/Professional PLUS loans, including that the borrower may have no negative credit history.

The maximum award amount for the Federal Graduate PLUS Loan Program is cost of attendance minus any other financial aid received by the student.

Remember that the student will need to fill out a separate PLUS Master Promissory Note (MPN) in addition to the MPN(s) for any other awarded loans from other loan programs. Federal PLUS loans may be consolidated along with any other existing Federal Student Loans when repayment begins.