Student Loans

The primary student loan available to students and families by the federal government is the Stafford Loan. It comes in two forms:

• Federal Family Education Loans - These are by private lenders.
• Federal Direct Student Loans - These are provided by the government directly to students and their parents.

Stafford Loans are either subsidized, meaning that the government pays the interest on them while the student attends school, or unsubsidized. Subsidized loans are advantageous because the student doesn't have to worry about making payments on them until six months after graduation, when a good paying job is more likely. Eligibility for subsidized loans depends on income level and school costs.

Government loans carry maximum limits, which vary according to the area of study, year in college or whether or not the borrower is still a legal dependent of the parents. The loan limits range from $2,000 per year to $40,500 for medical students. The interest rates are currently fixed at 6.8%.

For students with high financial need, the government provides Perkins Loans to supplement Stafford Loans. These are subsidized loans, so they don't have to be paid back until nine months after graduation, as long as the student is enrolled in at least a half-time schedule.

As with Stafford Loans, Perkins Loans have maximum limits. Undergraduates may take out up to $4,000 per year, while students in graduate school may receive up to $6,000. The interest rate is currently just 5%.

If Stafford and Perkins loans aren't enough, the student's parents may take out an additional loan known as the PLUS Loan. The student must be a legal dependent, and the parents are required to pass a credit check.

PLUS Loans are designed to supplement other grants and loans, so their amounts are determined by subtracting the borrower's total financial aid package from the total cost of school. So if school costs $10,000 per year and the student is receiving $8,000 from other sources, the maximum PLUS Loan would be $2,000.

Interest on PLUS Loans is generally higher, currently at about 8%. They are also not subsidized, so they begin accumulating interest right after the funds are disbursed. The borrower can wait until after graduation to begin repayment, but he or she will have to repay the accumulated interest as well. Under some circumstances, however, such as extreme financial hardship due to disability, the loans can be deferred, during which time interest would not be added.