Federal loans for education have many advantages. They have fixed interest rates for the life of the loan, and you don't have to start repaying them until you are done with college.
Investing in a college education, whether you use savings or loans or work to pay for it, is a smart investment in your future. Loans are an integral part of college financing for most families. Here's what you need to know about federal student loans.
The Two Federal Student Loan Programs
The federal government offers education loans to students and families with and without financial need. 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||5.05%||1.07%|
|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||7.6%||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.
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.
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.