What are the federal student loan programs?

There are four types of federal loans. Three are loans to students and one is a loan to parents.

The most common loan is the Direct Loan, formally known as the Stafford loan. These are direct loans to the student from the federal government. There are two types of Direct loans, subsidized and unsubsidized. Both require students to complete the FAFSA but only the subsidized loans require students to demonstrate need for eligibility.

Interest rates are based on a formula using the 10-year Treasury Note Index which will be calculated each year. You can see the current interest for Direct loans here. The federal government pays the interest on the loans for subsidized loans while the student is in school or in a deferment period. Students with unsubsidized loans don’t have to pay the interest while in school but the interest accumulates and the student is responsible for repaying it.

The maximum combination of subsidized and unsubsidized loans a student can borrow asĀ  a dependent students is $31,000 and $57,500 for independent students. Students whose parents are unable to qualify for PLUS loans can borrow up to $57,500 as undergraduates. You can see the limits for each year at the Studentaid.ed.gov website.

Perkins loans are federal loans but colleges distribute the money and payments are made to the college. Perkins loans are awarded to students with “exceptional financial need” and the interest rate is set at 5%. Students do not pay any interest while attending school.

Undergraduates can borrow a maximum of $5,500 per year. However, not all institutions participate in the Perkins loan program. Furthermore, the amount of funding is limited and each school sets its own eligibility requirements. Few provide the maximum amount per year. The definition of “exceptional financial need” varies as well with some schools requiring an EFC of 0 while others consider students with EFCs as high as $10,000. Perkins loans consist of only 2% of all federal loans.

The Parent Loan for Undergraduate Students (PLUS) is an unsubsidized loan and requires borrowers to immediately begin repaying the loan.

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