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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.