Federal Student Loans

Most students are unable to meet the cost of tuition and fees with just savings or income, and seek financial aid. There are scholarships and grants available, but often these funds are highly sought after and competition is steep. Even with state or federal grants, funding falls short. When all other financing options have been exhausted, it's time to look into federal student loans.

While there are private student loans available, it's better to go with federal student loans. Why? The interest rate on these types of loans tends to be lower, and repayment is flexible. Should the student fall on hard times following graduation, federal student loan payments can usually be deferred due to financial hardship, lowered to an income based repayment, or consolidated to save money and lump payments together.

There are a few different types of federal student loans available:

Stafford loans

Stafford loans are available to students attending eligible schools. There are two types of Stafford loans: subsidized, and unsubsidized. With a subsidized student loan, the government pays interest on the loan while the student is attending college at least half time, and for six months following graduation. An unsubsidized loan accrues interest immediately, which is capitalized and adds to the principal balance, and therefore the total interest due.

There are loan limits for the amount a student can borrow through the Stafford loan program, depending on the year of college they are in, and if they are classified as a dependent or independent student:

Year 1

  • Dependent: $5,500, $3,500 of which can be subsidized
  • Independent: $9,500, $3,500 of which can be subsidized

Year 2

  • Dependent: $6,500, $4,500 of which can be subsidized
  • Independent: $10,500, $4,500 of which can be subsidized

Years 3+

  • Dependent: $7,500, $5,500 of which can be subsidized
  • Independent: $12,500, $5,500 of which can be subsidized
  • Graduate Student: $20,500, $8,500 of which can be subsidized

Maximum amount allowed:

  • Dependent Undergraduate: $31,000, $23,000 of which can be subsidized
  • Independent Undergraduate: $57,500, $23,000 of which can be subsidized
  • Graduate: $138,500, $65,500 of which can be subsidized *Note, this maximum includes any undergraduate Stafford loans.

To apply for a Federal Stafford Loan, fill out the Free Application for Federal Student Aid (FAFSA).

Perkins Loans

Perkins loans are low-interest student loans offered specifically to students with demonstrated financial need, including those in a low-income family. Students may borrow up to $5,500 per year with a Perkins loan, depending on need. The average amount for which a Perkins loan is awarded is $2,125. Graduate students have a higher maximum available per year, $8,000. As with Stafford loans, a student must attend college at least half time to be eligible for a Perkins loan, and interest is subsidized while attending college and for a six month grace period following graduation.

To apply for a Federal Perkins Loan, simply fill out the FAFSA.

Parent PLUS loans

Parent PLUS loans are specifically for parents of college students to fill gaps in any funding that they are contributing to their child's education. The parent must fill out a loan application and master promissory note, and can borrow up to the cost of attendance minus any other financial aid awarded. For example, a parent with a child attending a school with a cost of attendance of $20,000 who has already been awarded a $5,000 Stafford loan may borrow up to $15,000.

The Parent PLUS Loan currently carries a fixed interest rate of 7.9%, which the parent will start paying immediately, as there is no deferral or grace for a parent loan. There is also a loan origination fee of 4%, which is taken directly out of the proceeds of the loan.