Federal loans for education are a great deal. They have low interest rates and don't have to be repaid until you are done with college.
Loans are an integral part of college financing for most families. Investing in a college education, whether you use savings or loans or work to pay for it, is a smart investment in your future.
The Three Federal Student Loan Programs
The federal government offers education loans to students and families with and without financial need. The following information pertains to the 2016-2017 academic year. All federal education loans are part of the Direct Loan Program, which means the U.S. Department of Education loans the money.
|Loan||Eligibility||Annual Loan Limits
for New Loans
|Stafford Loan||Undergraduate and graduate students with or without financial need||Dependent undergraduates: $5,500 freshman year, $6,500 sophomore year, $7,500 junior and senior years; limits for independent and graduate students are higher||3.76%||1.07%|
|Perkins Loan||Undergraduate and graduate students with exceptional financial need||Undergraduates: $5,500 a year through Sept. 2017
Graduate students: $8,000 a year through Sept. 2017
|PLUS Loan||Parents of dependent undergraduate students with or without financial need; graduate and professional students with or without financial need||Up to the total cost of college for the year, minus any financial aid already received||6.31%||4.27%|
Stafford Loans Help All Students
Undergraduate Stafford loans can be subsidized, with interest paid by the government while the student is in college, or they can be unsubsidized, with interest accumulating as soon as the loan is disbursed. Subsidized loans are awarded based on financial need. Unsubsidized loans are not, which means most students will qualify for them regardless of family income. If the student goes into certain careers, like nursing, law enforcement, or teaching in low-income areas, the loan is forgiven.
Perkins Loans Help Students with Exceptional Need
Some low-income students may qualify for the Perkins loan, however, not all colleges offer them. At the end of 2015, Congress extended the Perkins Loan only through September 2017. After that, no new Perkins loans will be available, even to existing borrowers. Before students can receive a Perkins loan, they must have exhausted their eligibility for Stafford loans (both subsidized and unsubsidized). Students don't need to start repaying a Perkins loan until nine months after graduating, leaving school, or dropping below half-time enrollment. Like Stafford loans, Perkins loans can be forgiven if the student goes into public service, and there are deferment options for up to three years.
Direct PLUS Loans Help Parents
Parents of dependent undergraduate students can apply for a PLUS loan. They must be creditworthy and their student must have completed the FAFSA. If parents are turned down for a PLUS loan, their student is eligible for higher Stafford loan limits. PLUS loans have a separate application, which parents can obtain from college financial aid offices and the Department of Education's student aid website.
How to Get a Federal Loan
The first step in applying for a Stafford or Perkins student loan is submitting the Free Application for Federal Student Aid (FAFSA). The college will then award the loans based on the student's financial need.
When Federal Loans Aren't Enough
If a financial aid package does not cover all college expenses, there are other loan options. Private lenders offer loans earmarked for education. Since these are not government-subsidized, the interest rates and fees are usually higher than those of federal loans. The student or parents need to be creditworthy to qualify. Some colleges also have their own loan programs.
To find out more about these loan options, see
- Stafford Loans: The Largest Student Loan Program
- PLUS Loans for Parents
- Investigating Private College Loans
Note: Financial information provided on this site is of a general nature and may not apply to your situation. Contact a financial or tax advisor before acting on such information.