There are four main types of federal student loans:
- Federal Perkins Loans
- Direct Subsidized Loans (Stafford Subsidized Loans)
- Direct Unsubsidized Loans (Stafford Unsubsidized Loans)
- Direct PLUS Loans (for graduate students, professional students, and parents of dependent students)
The U.S. government offers federal student loans to qualifying college students. Unlike federal grants and work-study funds, federal loans need to be repaid. The terms and conditions for repayment vary, depending on which type of loan(s) you receive and which repayment plan you choose.
You don’t need to select or apply for federal loans separately; you will automatically be matched with any suitable government loans when you complete the FAFSA application. Although there is an additional application if you qualify for a Direct PLUS Loan. A financial aid officer at the school you plan to attend will help you understand your financial aid package – i.e. the various awards you are eligible to receive.
In the meantime, the following outline can give you an idea of which federal loans might fit your situation and how they compare with one another. The maximum borrowing limits cited here are according to the U.S. Department of Education’s “Student Aid on the Web,” online resource. [1]
Federal Perkins Loan
Description: A need-based federal loan, with a low fixed interest rate, available to qualifying undergraduate and graduate students who attend participating colleges.
Sponsor: The Perkins Loan is a federal loan, but your school or college is the actual lender. Colleges that participate in the Perkins Loan program draw from their own revolving loan funds – a combination of federal capital and matching investments from the college itself. Colleges maintain their loan funds by collecting loan payments from their graduates.
Amount: The other factors that determine how much Perkins Loan money you may receive are (1.) your level of financial need and (2.) the timing of your FAFSA application. Applications processed later in the spring (according to the traditional fall/spring semester schedule) may arrive after budgets are already allocated to other students.
At most, qualifying undergraduate students may receive up to $5,500 for each school year; graduate students may receive up to $8,000. For each student there is a lifetime borrowing limit of $60,000.
Eligibility Requirement One: You must be attending an eligible program at least half-time.
Eligibility Requirement Two: You must agree to begin repayment of the loan within nine months after completing your studies or leaving school. The nine month window is called a grace period. If you return to school to finish your studies or to earn another degree, you may be eligible for a deferment of payments. If you have a financial hardship, you may be eligible for forbearance. In either case, you would need to contact the school that awarded you the loan, and discuss your options.
Application Requirements: Students who complete the FAFSA application are automatically considered. Students must complete a new FAFSA for each academic year during which they will enroll in classes.
Direct Subsidized Loan (a.k.a. Subsidized Stafford Loan)
Description: A federal loan, with a low fixed interest rate, available to qualifying college students who demonstrate financial need. Because it is a “subsidized” loan, interest does not accrue while students are in school or during the grace period after finishing school.
Sponsor: The U.S. Department of Education
Amount: The amounts you may borrow vary, depending on your status (whether or not you are an independent student), your level of financial need, and the number of years you’ve been attending college. Qualifying students may borrow subsidized amounts between $3,500 and $8,500 during their first year of a college program. With each subsequent year of school, the maximum limits increase.
Eligibility Requirement One: You must be attending an eligible program at least half-time.
Eligibility Requirement Two: You must agree to begin repayment of the loan within six months after completing your studies or leaving school. The six month window is called a grace period. If you return to school to finish your studies or to earn another degree, you may be eligible for a deferment of payments. If you have a financial hardship, you may be eligible for forbearance. In either case, you would need to contact your loan servicer and discuss your options.
Application Requirements: Students who complete the FAFSA application are automatically considered. Students must complete a new FAFSA for each academic year during which they will enroll in classes.
Direct Unsubsidized Loan (a.k.a. Unsubsidized Stafford)
Description: A federal loan, with a low fixed interest rate, available to qualifying undergraduate and graduate college students, regardless of their financial need. Because it is an “unsubsidized” loan, interest will begin to accrue as soon as the loan funds are dispensed.
Sponsor: The U.S. Department of Education
Amount: The amounts you may borrow vary, depending on your status (whether or not you are an independent student) and the number of years you’ve been attending college. Generally speaking, you may borrow unsubsidized amounts between $5,500 and $20,500 during your first year of a college program. With each subsequent year of school, the limits increase.
If you receive any amount of subsidized Direct Loans in combination with your unsubsidized loans, that amount will be deducted from your maximum borrowing limit.
Eligibility Requirement One: You must be attending an eligible program at least half-time.
Eligibility Requirement Two: You must agree to begin repayment of the loan within six months after completing your studies or leaving school. The six month window is called a grace period. If you return to school to finish your studies or to earn another degree, you may be eligible for a deferment of payments. If you have a financial hardship, you may be eligible for forbearance. In either case, you would need to contact your loan servicer and discuss your options.
Application Requirements: Students who complete the FAFSA application are automatically considered. Students must complete a new FAFSA for each academic year during which they will enroll in classe
Direct PLUS Loan
Description: A federal loan, with a low fixed interest rate, available to qualifying graduate students and professional students (e.g. law school or medical school students). In order to qualify, you must already have borrowed the maximum amounts available through the Direct Subsidized and Unsubsidized Loan Program.
Sponsor: The U.S. Department of Education
Amount: Qualifying students may borrow up to the full cost of your degree program, minus any costs already covered by other forms of financial aid.
Eligibility Requirement One: You must be attending an eligible program at the graduate (master, doctorate) or professional degree level. (Or you must the parent of a dependent college student, for whom you are borrowing.)
Eligibility Requirement Two: You must not have a negative credit history.
Eligibility Requirement Three: You must agree to begin repayment of the loan within six months after completing your studies or leaving school. The six month window is called a grace period. If you return to school to finish your studies or to earn another degree, you may be eligible for a deferment of payments. If you have a financial hardship, you may be eligible for forbearance. In either case, you would need to contact your loan servicer and discuss your options.
Application Requirements: In addition to the FAFSA application, you must complete a Direct PLUS Loan application and a Master Promissory Note (MPN). If you need help with the Direct PLUS Loan application, you should contact your college's financial aid office. Some schools will allow you to complete the application online, while other schools have a different preferred process. Students must complete a new FAFSA for each academic year during which they will enroll in classes.
[1] studentaid.ed.gov/PORTALSWebApp/students/english/campusaid.jsp#03