Federal student loan alternatives
If cash, grants and scholarships have been exhausted, a student can borrow from lending institutions to finance their education. The main loans provided for education finance are Federal Perkins loans, Stafford loans, Parent Loans for Undergraduate Students (PLUS) loans, Grad PLUS loans, and Private Student Loans.
Federal Perkins Loans
The Federal Perkins loan is a low interest (~5%) loan available to both undergraduate and graduate students with exceptional financial need. The Perkins loan is made through the school’s financial aid office. The government lends the funds to the school, but the student must repay the school. Unlike typical private loans, there is no origination fee with the loan. The student is only responsible for paying the interest and principal. Undergraduate students can borrow up to $5,500 per year (maximum $27,500 total) and graduate students can borrow up to $8,000 per year (maximum $60,000 including funds borrowed as an undergraduate student). The amount provided to each student varies by need and funding level at the school. The student must be enrolled at least as a half-time student. Once the student falls below this criteria (graduation, leaves school), he / she has nine months (“grace period”) before the repayment period begins. Please consult the Department of Education website or more details regarding these loans and the repayment guidelines.
In addition to the Perkins Loans, the Department of Education administers the Federal Family Education Loan (FFEL) and William D. Ford Federal Direct Loan program (Direct Loan) more generally known as Stafford Loans. Funds from the Direct Loans typically come directly from the federal government, while FFEL loans typically come from banks, credit unions and other financial institutions. The amount available depends on whether the loan is subsidized or unsubsidized.
Subsidized Stafford loans– government will pay the interest on the loan while the student is in school and for the first six months after leaving school. The student must qualify for the subsidized loan and the amount available under subsidized loans varies by year of study and whether the student is a dependent undergraduate, independent undergraduate or graduate.
Unsubsidized Stafford loans– students not eligible for subsidized financial aid may be qualified to receive unsubsidized financial aid. Unsubsidized loan borrowers are responsible for the interest from the time the loan is disbursed until repayment. However, the borrower can choose to pay the interest as incurred or let it accrue while enrolled in school.
Limitations on Stafford Loans depend on the type of loan and student financial dependency. Below is a table of the loan amounts as of July 2008:
|Maximum Total Stafford Loan (Sub & Unsub)||Maximum Subsidized Loan|
Graduate and Professional degree students can borrow a maximum of $20,500 per year of which no more than $8,500 can come from subsidized loans. These students cannot graduate with more than $138,500 ($65,000 in subsidized) in Stafford Loans, which includes any loans taken for undergraduate studies. More information on Stafford Loans can be found at http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp
PLUS Loans and Grad PLUS Loans
For dependent undergraduate students, parents can borrow PLUS Loans. Under PLUS loans, the parents must complete a loan application and credit check. Once the parent passes these two criteria, the parent is able to receive the funds up to the amount of the tuition less any other financial aid. As of July 2006, PLUS loans have fixed interest rates of 7.9% if borrowed from a Direct lender and 8.5% from FFEL PLUS lender. There are origination fees of approximately 4%, but no early repayment penalties. For more information on PLUS Loans please visit: http://studentaid.ed.gov/PORTALSWebApp/students/english/parentloans.jsp
Graduate and professional students are eligible for PLUS loans and have the same criteria / requirements as parents. Before receiving a PLUS loan, these students must complete the FAFSA form and apply for the maximum Stafford loans. More information can be found at: http://studentaid.ed.gov/PORTALSWebApp/students/english/PlusLoansGradProfstudents.jsp